Since the inception of Bitcoin, Proof-of-Work (PoW) has been the backbone of the cryptocurrency industry. However, in recent years, PoW mining has faced criticism for its significant energy consumption and carbon footprint. The debates on whether PoW mining is worth the environmental impact have become louder than ever.
The world faces a global climate change crisis, and many say that crypto mining, particularly PoW mining, has contributed significantly to this crisis, leading to debates on the industry’s future.
Today’s article will discuss crypto mining through Proof-of-Work and its challenges for the year. A battle between the Proof-of-Work and Proof-of-Stake significantly impacts energy efficiency within the crypto industry.
Read further as we discuss everything you need to know about the carbon footprint of mining, the challenges of Proof-of-Work mining, the impact of Proof-of-Stake, and tips on taking more environmentally friendly approaches to mining crypto.
Crypto Mining is Set for Greener Options
As some users see the crypto industry as a new way to earn cryptocurrencies, and money, others could pinpoint that the industry could lead to illegal activities and fraud. Still, in the end, all these people can agree on one significant aspect that comes with crypto mining – carbon emissions.
Studies suggest Bitcoin mining can take up to 1% of the world’s energy output. Digiconomist also highlights that Ethereum is paving the way for Bitcoin mining, reducing its electrical energy by approximately 99.84%.
To put it in a distinct perspective, based on how Bitcoin mining is done, the amount of energy you invest into ASICs is directly proportional to how fast you can mine. But here’s the catch: if you have slow computation power (a few ASICs or low-quality ones), you’ll have a harder time striking gold. And while it may be tempting to upgrade your ASICs, it’s important to remember that they’re a one-trick pony – they can’t be repurposed for other tasks. This means they’ll eventually become e-waste, which takes a toll on our planet.
Last year’s report advised that Bitcoin used 131 terawatt-hours annually, compared to 78 terawatt-hours used by Ethereum. This massive energy use increases carbon emission footprint, contributing to climate change.
Indeed, these numbers may vary, but we must mention here some actions taken by Ethereum, such as incorporating the Proof-of-Stake, therefore cutting approximately 99,95% of the energy costs.
Some countries, such as Sweden, alongside European Union’s Parliament, have already discussed the potential ban on the Proof-of-Work due to high energy consumption. There might have been a ban in other countries, or at least they were discussing it, which has already led to the migration of miners to more crypto-mining-friendly countries.
For instance, since the prohibition of Bitcoin in China in 2021, many users have moved to other countries, such as Kazakhstan, where they have less renewable energy than China. This resulted in a substantial negative impact, with a 17% increase in the overall carbon footprint.
The Proof-of-Stake Algorithm and Its Benefits
Proof-of-Stake is a consensus mechanism validating the transaction, creating a new block into the blockchain, and securing it.
In PoS, validators are chosen to validate transactions and create new blocks on the blockchain based on the amount of cryptocurrency they hold and “stake” in the network. The higher the stake a validator has, the more likely it will be selected to validate transactions and create new blocks.
Validators are incentivized to behave honestly and follow the network’s rules, as they risk losing their staked coins if they act maliciously.
It brings a unique perspective on how users verify blocks and transactions by reducing the needed computational power.
Users are operating on their machines, using computers with as little as 8 GB of RAM.
The Proof-of-Stake represents the response to these challenges and offers a more excellent reaction to the low response rate from the Proof-of-Work.
Benefits of Proof-of-Stake:
- Reduced computational work, resulting in less energy consumed;
- Staking tokens instead of computational power;
- Environmental and sustainability of mining.
Disadvantages of Proof-of-Stake:
- Slow time response for transactions;
- 51% attack could be a genuine concern;
- Extensive holdings can lead to excessive influence within the transaction verification from validators.
Proof-Of-Work Algorithm and Pros and Cons
Proof-of-Work is a consensus mechanism that uses computational power to verify transactions and add them to the blockchain. PoW’s mechanism has led Hal Finney, the recipient of the first-ever Bitcoin transaction, to develop the algorithm further using the 160-bit secure hash algorithm 1, creating the “renewable Proof-of-Work.”
Proof-of-Work requires network members to join forces to solve an encrypted hexadecimal number, and they are called miners due to the reward received as soon as the block is secured, instead of “validators” as it is for the Proof-of-Stake.
As more people are solving math puzzles and it becomes a bit easier, a measurement of prevention is applied – the algorithm gets harder to solve, keeping it from bleeding with coins.
In the beginning, the PoW (proof of work) did not have any significant environmental impact. Still, alongside the crypto’s growth, it has seen an increase in energy consumption and climate change.
Benefits of Proof-of-Work:
- A solid mechanism for preventing abuses;
- Ensures authenticity and traceability of transactions;
- Secure peer-to-peer transactions.
Disadvantages of Proof-of-Work:
- High computational power is required, hence the hefty energy charges;
- A higher hardware cost, compared to PoS;
- With the competitive nature of mining, only the first miner to solve the computational puzzle will be rewarded with the native coin.
Why is Proof-of-Work Still Leading?
There is no wonder that PoS is a greener approach, but it might come with the cost of attacks as a substantial percentage of the total assets are staked instead of using the hardware and logistical hurdles. The main differentiator between Proof-of-Work and Proof-of-Stake could be reliability.
As Bitcoin demonstrated its ability to maintain a complex system, only in time can we see the aftermath of switching to PoS with Ethereum and if it can be a scalable solution offering high security at the same time.
Layer-2 Solution Scaling up the PoW
One of the essential things for blockchain technology is the ability to scale up as the ecosystem grows, and BTC holders might be familiar with the “Blockchain Trilemma.”
Finding a balance between decentralization, security, and scalability is an uncharted territory that needs conquering, and hopefully soon enough. Although, we must recognize the steps already made with Layer-2 scalability solutions.
To understand the concept of Layer-2, we must look back at the challenges that made this possible. So, Layer-1 blockchain refers to the base protocol for Bitcoin or Ethereum that have in common a slow transaction speed and a lack of scalability; thus, solving this is vital to grow and expand. Besides, on Layer-1, reaching the blockchain limit could cause network congestion and high gas fees.
Layer-2, L2 blockchain network, or Data Link Layer acts as an overlying network that enables multiple low-value transactions to be processed on a parallel blockchain or third-party networks without implicating the primary layer of the blockchain.
Bitcoin users can enjoy the benefits of the Lightning Network, while Ethereum users can take advantage of cutting-edge Layer-2 networks such as Plasma, Polygon, and Optimism.
What is Bitcoin’s Lightning Network?
Remember the “Blockchain Trilemma”? Well, Lightning Network is a step towards solving the issue of decentralization, scalability, and security that allows users to send and receive BTC with no virtual fees.
However, we can all agree that LN needs to be upgraded with better functionalities. We can admit that given the initial design, as a peer-to-peer electronic cash system, it currently faces some limitations, including:
- Fees can fluctuate based on the demand;
- TPS or transactions per second: Bitcoin can currently process seven transactions per second (Ethereum processes 30 transactions, while Solana takes up to 65,000 TPS).
- Network congestion that results in delayed transactions.
Learn How Bitcoin’s Lightning Network Works
We could state that the simple mechanism allows transactions to be processed in seconds without hassle through the peer-to-peer payment channel between two parties.
For instance, if you wish to purchase a coffee with BTC, you just need to lock in the necessary sum, and then the coffee shop could invoice the amount, closing the channel, or they can keep it open if it is more than a one-time payment.
Lightning Network works by connecting the transactions formed between individual channels, thus improving the transactions’ speed, and acting as a ledger that does not involve the main blockchain.
3 Tips to Make Crypto More Sustainable
As promised, here are three tips for a greener approach to crypto mining:
- Smart Technology enables the option to keep an eye on energy consumption.
- Renewable energy could diminish carbon emissions.
- Carbon offset projects could help combat carbon emissions, but they only solve the situation partially. *Some cryptocurrencies take a similar route by rewarding users for their green actions.
Final Thought on PoW State
Is Proof-of-Work a better approach than Proof-of-Stake? It could be, depending on the perspective and the rewards that you have in mind. The impressive success of Bitcoin’s Proof of Work (PoW) consensus algorithm is a testament to its ability to maintain a complex and demanding system. As Ethereum transitions to a Proof of Stake (PoS) model, the industry eagerly anticipates whether a staking-based system can match or surpass PoW’s achievements.
However, Bitcoin continues to dominate the crypto industry, with its PoW consensus-based model remaining more prevalent than Ethereum’s PoS model, despite Ethereum’s transition. This is evident when we examine crypto by market cap, where Bitcoin holds a commanding lead even though it works with PoW.
Despite the buzz around staking, mining remains the bedrock of the blockchain industry. However, the introduction of staking through PoS represents a significant step forward in enhancing the efficiency and scalability of blockchain networks. It remains to be seen whether PoS will achieve the same level of robustness and security as PoW. Still, the industry’s potential for innovation and growth is undoubtedly promising.
Notice: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. Authors may own the cryptocurrency they discuss. The information and content are subject to change without notice. Visionary Financial and its affiliates do not provide investment, tax, legal, or accounting advice.