Proof of Stake: The real solution for environmental concerns?
In the previous article: The basic of Proof of Work, we explained the mechanism of PoW, and its pros and cons. The environmental concerns related to Bitcoin mining energy, however, have recently raised a major debate about how to make Bitcoin mining greener in the long run. And Proof of Stake was mentioned as an alternative for PoW. In this article, Tokenize Blog will go deep into the Proof of Stake protocol and answer the question: Is PoS a real solution for mining energy consumption?
What is Proof of Stake?
The Proof of Stake (PoS) is a consensus mechanism which states that a new block transaction can be validated according to how many coins the miner is staking. It means the mining power is no longer based on mining computer rigs, but on the number of coins held by miners.
Understanding Proof of stake
To take part in the verification process in a blockchain, users have to create a node that takes responsibility for the correctness and reliability of data storage in the distributed ledger. The node can be managed by an individual or a group of users working together. To prove its trustworthiness in the verification process, the node will be required to look away a certain amount of cryptocurrency. This progress of cryptocurrency locking away is called staking.
An algorithm will be selected to make sure that the node with more coin staked will be selected. Its task is to check and add the new block to the chain.
Said Ryan, the researcher at the Ethereum Foundation: “Instead of buying a bunch of hardware and burning a bunch of energy, I can instead take that asset and lock it in kind of like a security bond,”
Similar to Proof of work, the nodes in Proof of stake are rewarded for taking part in this process of staking. They get rewarded with more coins when:
- They accept it as accurate and confirm it follows the rules.
- They win a block
However, if a mistake or fraud happened, the validators (the node) that published the troublesome block would be punished by having some or the whole staked coins destroyed by the protocol. Further, they might be banned from the network. These penalties are created to prevent false transactions or false data history and protect the security mechanism.
Proof of Stake vs Proof of Work
In a nutshell, below is the key difference between Proof of Work vs Proof of stake:
In Proof of Work, miners are more likely to “win” additional blocks to the blockchain if they can solve the computational puzzles more quickly, which means having more computer power which is fueled by electricity.
In Proof of stake, miners (the nodes) have more possibility to win additional blocks if they stake more coins, in other words, have more money.
Let’s look at this infographic from 3iQ Research Group for more details.
Since the mechanism of Proof of Stake doesn’t require any extra electrical energy to solve mathematical problems like Proof of Work, it is much more energy-efficient. Consequently, participating in the staking process will require a much lower barrier to entry, so users can easily participate in the process. So it raised a question: is Proof of Stake better than Proof of work?
Is Proof of Stake the real solution for environmental concerns?
The question is still in major controversy.
PoS has already been in use. Cardano with a $50 billion market capitalization is the typical Proof of Stake digital coin on the market. Cardano rocketed after Elon Musk’s tweet about not accepting Bitcoin payment for Tesla due to mining energy consumption concerns.
Along with Cardano, Ethereum developers have a plan to move from the Proof of Work (PoW) mechanism algorithm to Proof of Stake (PoS) in the upcoming months according to the implementation of EIP 1559, according to the Ethereum Foundation in April 2021. Currently, the energy usage of the network is expected to plummet by 99.99%, according to the Ethereum Foundation.
Aside from Cardano and Ethereum, there are hundreds of Proof of stake crypto. When Proof of Stake has been widely applied for more digital coins, it could absolutely be an alternative for Proof of Work, and a green solution for mining energy consumption. Keep following Tokenize Xchange for more cryptocurrency updates and blockchain understandings!
Cryptocurrencies are subjected to high market risk and volatility despite high growth potential. Users are strongly advised to do their research and invest at their own risk.