Can Proof of Work Survive?
It might be a good idea to review the consensus mechanisms being used in the cryptocurrency ecosystem by clicking here if you are unsure what the difference between Proof of Work (PoW) and Proof of Stake (PoS) is. Knowing what PoW is and how it compares to PoS is vital to understanding what I’m going to be discussing in this article.
Proof of Work is the original consensus mechanism first deployed by the Bitcoin blockchain and it is used by many other top platforms in the market (Litecoin, Ethereum, Monero, etc.). It relies on computers proving that transactions are valid (or not valid) via the work that they do. And these computers rely on electricity – a boat load of it.
How Much Energy Does PoW Use?
Based on various studies conducted over the past year it’s been found that the Bitcoin blockchain alone consumes more electricity than several countries. And this is just the Bitcoin blockchain we’re talking about. This doesn’t include the other major networks that rely on Proof of Work consensus mechanisms.
If you’re reading this then chances are you believe in cryptocurrencies in general and you believe they will slowly be adopted over time. But as adoption increases the amount of hardware (and with it electricity) needed to support these networks will also increase. The amount of electricity these networks will consume (along with it’s carbon footprint) will continue to grow.
Let’s assume that Bitcoin does become the largest virtual currency in the world and is used for everyday transactions. The amount of transaction throughput would force the network to consume a significant amount of global power. There is not one industry that exists today that would consume as much electricity as the Bitcoin blockchain network.
The only way that the Bitcoin blockchain network can continue in it’s current state (not taking into account transaction time issues, transaction fee issues, and possible Lightning Network solutions) is if the computers used to approve transactions on the network become more energy efficient. There will need to be a major breakthrough in the technologies used to create Bitcoin ASICs (the specialized computers used to solve the algorithm used on the network) for the computers to maintain computational efficiency while cutting electricity consumption by a significant margin.
It is possible that this can happen but I don’t imagine it coming to fruition any time soon. This is why, in my mind, Proof of Work is not a consensus mechanism that can scale to the size that will be needed if mass adoption of cryptocurrencies occurs. Our society is constantly moving toward a social order in which environmentally friendly sources of energy are valued. And it is difficult to see a virtual currency that is so environmentally unfriendly being adopted on a large scale.
So What Are Our Options?
New consensus mechanisms will be created. Proof of Stake, the Tangle utilized by Iota, and federated Byzantine agreement utilized by Stellar already exist. These systems are more energy efficient than Proof of Work is. But they are still relatively new and they have not proven that they are more secure than Proof of Work is.
These existing consensus mechanims might not be the solution for the future of blockchain scalability however. Let’s not forget that this industry is developing so quickly. It is quite possible that a new consensus mechanism that is neither Proof of Work or Proof of Stake proves it’s merit in both environmental friendliness and network security. That’s why it’s important to keep some of your portfolio in cash so you can capitalize on new opportunities in the market as they present themselves.