Because of the number of people performing PoW and the amount of time, people and energy it requires, this is one of the protocols that cause the biggest environmental concern.
The world of crypto and Web3 is becoming increasingly popular amongst business professionals. Public blockchain market caps account for over $217 billion in value in 2022. According to data from Grand View Research, revenue from the global blockchain industry will be $5.76 billion by 2025.
Whether it is for investing, financing, or doing business, cryptocurrencies are here to stay. However, as sustainability experts and advocates, we cannot ignore the growing risks of the industry’s environmental impact. According to Harvard Business Review, in 2017 the blockchain used more power than 159 individual nations including Uruguay, Nigeria, and Ireland.
One of the biggest energy consumption efforts in mining crypto is the validation protocol that is used in the majority of the cryptocurrencies: Proof of Work (PoW). However, there are new currencies, such as Solana and Ethereum 2.0, that are trying new mechanisms – like Proof of Stake (PoS) – which require far less energy consumption and could offer an alternative to the PoW system.
Let’s discuss the difference between these two systems and outline the reasons why Proof of Stake is a more environmentally viable protocol when mining crypto.
Consensus Mechanisms
First thing first, what are consensus mechanisms when referring to crypto? Because public blockchain networks lack a central authority, consensus mechanisms enable trust-less oversight. These autonomous rules are specific to the blockchain network on which they operate. For any transaction to occur on a decentralised network, all network participants (nodes) must reach a consensus.
Proof of Work and its environmental concerns
The most popular consensus mechanism used in crypto is Proof of Work (PoW). What PoW means is that miners compete to solve complex mathematical problems based on cryptographic hashing algorithms. By solving these puzzles, successful miners show the network that substantial time has been spent validating a block of transactions — resulting in a consensus.
Because of the number of people performing PoW and the amount of time, people and energy it requires, this is one of the protocols that cause the biggest environmental concern. According to Digiconomist, annual Bitcoin electricity consumption currently sits at 204.50 TWh, comparable to the total power consumption of Thailand.
Therefore, there is growing interest in looking for other consensus mechanisms to use for cryptocurrencies, such as Proof of Stake (PoS).
Proof of Stake as a viable alternative
The way that PoS works, as explained by nova is that “blockchains will have a system of validators who stake their own crypto (i.e. put money down upfront) to earn a chance to validate new transactions, update the blockchain, and earn a reward for either making updates or double-checking others’ updates. Validators can lose money through a process called slashing if they validate bad transactions or go offline while validating. The network will choose a validator to update the blockchain according to how much crypto they’ve staked and how long they’ve had it staked for, rewarding people who are most invested. After a validator has updated the blockchain, other validators can double-check the block of transactions that they have posted. Once a block receives a certain number of approvals from other validators, the network will accept the update.”
It is already apparent how having a focused group (rather than everyone) to validate single transactions is not only much more efficient in time but also in energy. There are already major cryptocurrencies, like Ethereum, that have made the commitment to transition from PoW to PoS, to address environmental concerns. It’s claimed proof of stake will actually cut Ethereum’s energy consumption by as much as 99% in the switch from 1.0 to 2.0.
Although PoS mechanisms have proven to be more efficient, scalable, and environmentally less harmful, PoW still remains attractive for some cryptocurrencies, given its history of secure operation and ease of implementation. For these industry players, powering PoW with renewable energy is seen as a viable solution to external pressure to address environmental concerns. Regardless of the path chosen, it’s clear that eco-friendly solutions are in demand.
