When Satoshi Nakamoto invented Bitcoin, he wanted a method that could properly govern a decentralized network. Governance is pretty straightforward in a centralized system led by a CEO and a board of directors. However, it isn’t that straightforward in a decentralized network with a flat topology. This was when Nakamoto came up with proof-of-work to:
- Ensure network safety by using a purposefully expensive process.
- Rewarding users for participating in the mining process.
So, before we go any further, let’s understand how mining works.
What is proof-of-work?
In the proof-of-work (PoW) mining process, you have nodes in the network that owns specialized mining equipment. These nodes are called miners and use real-world computational power to solve cryptographically challenging puzzles. When they successfully solve a puzzle, they get to add a block to the blockchain and earn a block reward. Increased mining activity means increased hashrate, which makes the network more secure and fast. However, despite being a secure consensus mechanism, PoW does have a significant flaw.
If you Google “bitcoin mining wastefulness,” then you will likely be bombarded by a bunch of crazy facts. Here are some of them:
- A study in the 2019 Joule scientific journal estimated Bitcoin mining to be responsible for between 22 and 22.9 million metric tons of carbon dioxide emissions a year. That’s 1% of the global electricity consumption, or 2.7 billion homes, or emissions by countries like Jordan and Sri Lanka.
- In 2020, the Bitcoin network consumed 131.80 TWh of power. That’s the same as the entire country of Argentina.
- Per a May 2021 study, Bitcoin’s e-waste adds up to 30.7 metric kilotons. This is the same as Netherlands’ telecommunication equipment waste.
Now, we must mention here that Bitcoin mining has taken steps to be more sustainable over the last few years. The Bitcoin mining council must be lauded for its efforts here. However, mining is still wasteful, and there is no fault in looking for a viable alternative.
Is PoS a better alternative?
Proof-of-Stake or PoS makes the entire mining process virtual and doesn’t require you to waste computational resources. In PoS, your hashrate is determined by the stake you have locked up within the ecosystem. So, the higher the number of tokens you lock up, the better your chances of mining a block. Currently, PoS is under the spotlight since Ethereum — the second largest crypto in the world, just transitioned from PoW to PoS following an event called Merge.
So, what are the advantages of PoS mining? Let’s take a look.
PoS is greener
Unlike PoW, PoS doesn’t require you to buy expensive ASICs and GPUs and waste your resources and electricity. This makes PoS’s carbon footprint exponentially lower than PoW’s.
Sets the groundwork for future scalability
In general, PoS is not faster or more scalable than PoW. However, it does make implementing sharding much simpler. Sharding is a layer-1 scalability technique that allows you to break down the network state into multiple smaller chunks (called shards). These shards can be processed in parallel to increase overall throughput.
With the criticism that PoW has faced over the last few years, it is easy to see why so many new protocols have opted for a PoS system. However, as we have said before, it is important to remember that PoW-based coins like Bitcoin have taken steps to be more sustainable over time.