As cryptocurrency becomes increasingly mainstream, the energy usage of some of the largest Proof-of-Work (PoW) blockchains, like Bitcoin, Ethereum, and Bitcoin Cash, has come under intense scrutiny. Not only have some of the most influential people in the world expressed their concern over the environmental impact of PoW, but entire countries have moved to ban crypto mining altogether. So, what’s the alternative for a sustainable blockchain business? Is an energy-efficient PoS-based blockchain possible? Let’s take a closer look.
How Proof of Work (PoW) Works
In the blockchain world, to prevent errors such as fraudulent transactions or double spends, there has to be a consensus mechanism that allows all the nodes in the network to agree on the accuracy of each transaction before new blocks are added to the chain. On the Bitcoin network, this consensus is reached through a mechanism called Proof of Work (PoW). PoW relies on an energy-intensive practice called mining in which participants (known as miners) solve highly complex mathematical equations by lending vast amounts of computational power to the network.
The energy that PoW-based blockchains require to sustain them is so significant that the Bitcoin blockchain alone has an annual carbon footprint comparable to that of a medium-sized country. Just one Bitcoin transaction consumes as much power as an average American household over a 74-day period. As an entire ecosystem of more than 13,000 cryptocurrencies emerges, it’s clear that PoW is no longer an option moving forward.
The Environmental Impact of PoW
Until recently, around two-thirds of all Bitcoin mining was carried out in China where abundant low-cost energy and favorable climatic conditions made the practice worthwhile. Yet, in June 2021, the Chinese government clamped down on crypto mining, banning all domestic mining operations; citing environmental impacts among their many concerns. As crypto miners began to flee to friendlier jurisdictions, the impact of mining’s energy usage became even more apparent.
In Kazakhstan, where a mass exodus of Chinese miners fled, the power grid soon began to feel the strain, as sweeping power cuts rolled throughout the country leading to social unrest. In October 2021, the Kazakhstan government announced that it would be cutting off the power supply to crypto miners. In the US, now home to more than one-third of all crypto mining, Congress has begun to investigate the energy demands of crypto mining. In December 2021, Senator Elizabeth Warren expressed her deep concern over its environmental costs, sparking repeated rounds of congressional inquiries and a Committee Hearing on “Cleaning up Cryptocurrency”. In the EU, a proposal to ban PoW crypto mining narrowly failed to win approval last month.
ESG investors also find their hands tied when it comes to investing in PoW-based blockchains because of their disproportionately high carbon footprint. Even previously, pro-Bitcoin advocates, like Tesla’s Elon Musk, had been vocally critical of the “rapidly increasing use of fossil fuels for Bitcoin mining and transactions”.
Scalability Issues and Sky-High Fees
Beyond the energy output of PoW-based blockchains, many popular networks, like Ethereum, are plagued with issues of scalability, lengthy transaction times, and sky-high fees. With the average transaction fee hitting almost $70 last year, many blockchain businesses built on Ethereum found the cost of user acquisition too high and were forced to suspend operations. One such project, UniLogin, posted a blog article announcing that it was shutting down. The opening sentence simply stated, “Unilogin is out of gas”.
In other areas, such as decentralized finance (DeFi), traders are growing increasingly frustrated, as fees on popular platforms, like Uniswap, are pricing them out of the market, making DeFi a playground for whales. With thousands of decentralized applications (dApps) competing for throughput on one single base layer, the Ethereum chain is grinding under the strain. So, what’s the solution?
Blockchain applications built on PoW-based chains must seek a more viable alternative that can scale for mass adoption and accommodate a meaningful number of users. Blockchains, like Cellframe Network, adopt a different consensus method, Proof of Stake (PoS), that allows enterprises and developers to build dApps and blockchains that do exactly that — while using a fraction of the energy.
How Proof of Stake (PoS) Works
In PoS, rather than miners lending computational power to the network, validators verify transactions based on the amount of the network cryptocurrency they own (their ‘stake’). Validators validate the same percentage of transactions as their stake in the network. So, if a validator has 4% of crypto assets staked, they can only validate 4% of the blocks, serving to maintain decentralization in the system and removing the need to solve complex equations with vast amounts of energy. In PoS, no mining equipment is needed at all.
According to a recent estimate, the planned migration of Ethereum from PoW to PoS could result in a 99.95% reduction in total energy use, making PoS around 2000 times more energy-efficient than PoW. For blockchain businesses that seek sustainability and growth, selecting a PoS-based blockchain, then, becomes an obvious choice. Yet energy output, speed, usability, and sustainability are not the only considerations to keep in mind.
The Threat of Quantum (NASDAQ:QMCO) Computers
One serious threat that is not given enough consideration by most existing blockchains comes in the form of quantum computers. In the not-too-distant future, a quantum machine will be able to crack current public-key cryptography and potentially threaten every byte of data known to mankind. Most blockchains will be unable to thwart this attack on their security. This highlights the need for PoS-based quantum-proof blockchains that are energy efficient — and secure against any attack by a quantum computer of any size.
Through quantum-resistant cryptography, next-generation blockchains, like Cellframe Network, ensure that no algorithm can penetrate its network or the applications built on it, offering a scalable open-source platform secured by post-quantum encryption. Blockchain businesses can future-proof their brands while benefiting from fast, scalable, energy-efficient technology at their core.
Final Thoughts
With the obvious shortcomings of PoW, energy-efficient PoS-based blockchains have emerged that allow enterprises and developers to expand for mass adoption. However, most PoS chains are not quantum-resistant and can’t offer long-term security against the threat of quantum computers. For blockchain businesses seeking sustainability and longevity, they should build on a blockchain that is fully future-proof and will remain relevant in the post-quantum era.
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