Bitcoin (BTC), the original cryptocurrency that started it all and that continues to drive market sentiment today, has faced numerous challenges along the way. The most recent challenge seems to be in relation to the mining consensus, proof of work (PoW) and the resulting environmental impact.
The Bitcoin network’s high energy consumption has been one of the hottest topics over the past year, with the likes of Elon Musk fueling sentiment that BTC in its current form is bad for the environment. Fortunately, mining companies have been investigating the use of renewable energy for some time, and the latest reports suggest that 58% of the BTC network’s energy comes from renewable sources.
In 2022, the debate appears to have shifted from embracing clean energy to a complete change in the mining consensus, with a lobby of billionaires and Proof-of-Stake (PoS) advocates calling for a change in the Bitcoin code. Sentiment is also being fueled by Ethereum’s move from PoW to Proof-of-Stake, which is expected to be complete by the end of 2022.
PoW is the original crypto mining consensus popularized by Bitcoin and adopted by several early crypto projects. PoS emerged with the launch of peercoin in 2013, and while it wasn’t very popular initially, its scalability and power efficiency made it a popular choice for new crypto projects.
William Szamosszegi, CEO of bitcoin mining platform Sazmining, told Cointelegraph that “the fundamental mistake Greenpeace, Larsen, and other critics of bitcoin’s energy use make is that they classify bitcoin by its ‘ingredients’ rather than its Assess value proposition”. He further added:
“We should judge a novel invention by how well it solves a societal problem. PoW enables solid money and a decentralized currency backed by real energy. It’s impossible for PoS to do that.”
Recently, the Bitcoin Mining Council (BMC) responded to a letter to the United States Environmental Protection Agency (EPA) clarifying that proof-of-stake and proof-of-work are qualitatively different. Therefore, it is misleading to call Proof-of-Stake a “more efficient” form of Proof-of-Work as it does not do the same thing.
Proof-of-Work offers true decentralization
PoW is touted as the most reliable way to reach consensus on a blockchain. It helps decentralize transactions, removing intermediaries and ensuring transaction validity. Mining consensus gives everyone an equal opportunity, and new miners are encouraged to add more hardware and expend more energy to get their share of the mining rewards.
PoS, on the other hand, uses a staking system that requires a certain amount of capital in the form of the network’s tokens to become a validator. Its security is said to derive directly from the perceived economic value of the network, or how expensive it is to acquire a majority stake.
While much is made of Bitcoin’s energy consumption, which is definitely on the higher side compared to other crypto projects, crypto naysayers often see energy consumption as an independent metric. Meanwhile, Bitcoin’s energy consumption is directly proportional to its security, making it truly decentralized.
However, many efforts are being made to make bitcoin mining greener even in its current form. According to a study by Galaxy Digital, the Bitcoin network uses almost half the energy that banks and gold mines use.
Critics often assume that the energy used by Bitcoin miners is either stolen from more productive use cases or results in increased energy consumption. However, research studies have shown that bitcoin miners use unrivaled energy that might otherwise be wasted or underutilized.
Calling for changes to the fundamental principles of the Bitcoin network is nothing new. During the Bitcoin Block Size War of 2015-2017, many exchanges and miners supported a Bitcoin hard fork, but the Bitcoin community fought back to keep the network true to its value as created by Satoshi Nakamoto himself. Joe Burnett, mining analyst at Blockware Solutions, believes that any attempt to change Bitcoin’s consensus algorithm “is bound to fail,” Cointelegraph told Cointelegraph:
“Bitcoin users or node operators could resist consensus-changing changes and update the network backwards compatible. This war has set the precedent that bitcoin is highly resilient to changes that could alter its value proposition of being absolutely scarce, portable, long-lived, divisible and fungible.”
A look back at some of the forks from 2018, when the block size debate was at its peak, paints a true picture of why Bitcoin shouldn’t be changing its codes. The two blockchain networks that emerged during the “block size war” were Bitcoin Cash (BCH) and Bitcoin SV (BSV). Both networks have faced significant centralization and security issues, and the evolution of these networks has declined over time.
Another prominent confirmation of the PoW mining consensus is the Chinese mining ban last year. China contributed more than 60% of Bitcoin mining output, but the blanket ban resulted in a complete shutdown as miners were forced to cease operations. Bitcoin network hashing power dropped by more than 50% overnight. However, within a few months, mining strength was back to pre-ban levels, showing the true power of decentralization.
Top PoS networks have problems
The biggest selling point for PoS is its energy efficiency and scalability. However, these advantages come at the expense of decentralization – the basic principle of cryptocurrencies. For example, Bitcoin was created with an equality principle that promises to offer equal opportunities to anyone who wishes to participate. However, PoS creates a staking barrier where the highest staker has the first say in the decision-making process.
While it is true that PoS verification is less energy-intensive than the PoW system currently in place, there are fundamental obstacles to the PoS model that significantly reduce the likelihood of Bitcoin changing its consensus mechanism any time soon. One of the main problems with PoS networks is the degree of centralization and the resulting impact on the security of the network. Noble Drakoln, podcast host for Accredited Investor Journal, told Cointelegraph that “PoS networks could be ‘green’, but they’re not decentralized.”
This is evidenced by multiple protocol violations across multiple PoS-based decentralized finance protocols and non-fungible token (NFT) games. Even the largest PoS network like Solana, whose adoption has increased significantly, has faced numerous outages over the past year. Most outages were caused by Distributed Denial of Service (DDoS) attacks, resulting in a loss of consensus between validators.
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Ether (ETH), the second largest cryptocurrency by market cap, has decided to switch to PoS to solve scalability issues on its platform. However, the transition was delayed several times and even a switch to PoS does not guarantee smooth work. Drakoln further explained:
“Moving to POS compromises that security without looking for secondary solutions to make POW work. The environmental concerns surrounding the Bitcoin network have created a lobby calling for the code to be changed from proof-of-work to proof-of-stake. However, PoW is the key to decentralizing Bitcoin.”
The need for consensus mechanisms is not only to secure the network, but also to enable scalability. Ether, for example, has different use cases compared to Bitcoin and therefore needed to be scaled differently, leading to Eth2 introducing PoS in the future.
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Bitcoin, on the other hand, only needs to process the transactions on the network, allowing PoW to build on maximum network security, while leveraging Layer 2 applications such as Lightning Network or Stacks to balance this scalability as the mining aspect moves towards more energy-efficient options.
https://cointelegraph.com/news/eager-to-work-bitcoin-switch-to-proof-of-stake-remains-unlikely A shift from Bitcoin to proof-of-stake remains unlikely