You might have read a lot about different ‘consensus mechanisms‘, and two of the main ones are Proof of Stake (PoW) and Proof of Work (PoW). And, you’ve probably heard how one of them is better for the environment. Let’s look a bit deeper…
Cryptocurrencies have been gaining momentum and become something exciting for investors to venture into. They’re decentralized, meaning no centralized exchanges are monitoring these transactions. The lack of a central authority in a public blockchain to verify transactions calls for cryptocurrencies to overcome the challenge themselves by having all network participants reach a consensus in a decentralized blockchain. A consensus mechanism will regulate verifying and adding transactions to this blockchain. This ensures that people do not create or use the same coin twice.
One of these consensus mechanisms is the proof of stake mechanism. Perhaps most famously, the Ethereum Network switched to the proof of stake method during the Ethereum merge event to ease the environmental impact of crypto as reported by Crypto Lists.
How Proof of Stake Works
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In a PoS system, users create a node run by an individual or a pool of people collaborating. The node functions as a computer and is required to prove its trustworthiness by locking away a certain amount of crypto. The coins must be the same type as those generated by the blockchain being verified. This process is referred to as staking. An algorithm selects one node for each block of transactions to be verified. During this process, the algorithm considers several factors in rewarding nodes with more coins staked and ensuring no particular node has excess control. The selected node checks and adds the block to the chain.
Other nodes have time to countercheck the verification. If a node verifies a block fraudulently or with mistakes, it incurs a penalty. The penalty consists of destroying some or all of the coins staked. If all is well, the node is rewarded with more coins. The use of collateral is an incentive to maintain the integrity and security of the network.
Environmental Impact of Crypto’s Proof of Stake
The fundamentals of proof of stake require limited energy in verification and hence are energy-efficient. It uses 99% less energy than the proof of work mechanism. The hardware that one uses is less specialized than the high-end graphics cards needed in PoW. It only requires an average laptop, allowing the network to scale and reducing the amount of electronic waste generated. The nodes are virtual spaces and not physical equipment.
The PoS system promises a greener future for cryptocurrency through its energy efficiency and cost-effectiveness. This causes less ecological impact compared to mechanisms like proof of work. PoS is seen by many as the environmental saviour of the crypto industry, with widespread attempts to explore the ecological impact. The technology allows circumvention of the energy-intensive cryptographic problem-solving needed to mine crypto in PoW systems. Despite their use of cryptography, they use a dramatically lower level of energy consumption than PoW alternatives. In these cases, miners do not need to solve highly complex puzzles to prove their work on PoS blockchains, and the processing power is much low. These explorations of energy-efficient alternatives contribute to a growth in environmental awareness.
It is environmentally efficient as it reduces carbon emissions and energy consumption. The system is highly scalable to high transactions without slowing the network and causing unnecessary delays. This lowers the entry barrier for potential miners with more people participating in the process. The decentralised nature of the process with more people participating secures the blockchain further while using less computing power. There are several projects out there that emphasize their clean and green credentials.
Validation vs mining
Also, the PoS mechanism mitigates environmental degradation. For instance, it reduces hardware waste generation. The system does not use mining and powerful hardware, which has a lasting impact on hardware waste. Additionally, the mechanism’s use of validators instead of miners ensures that they do not use much energy in the environment. It reduces the toxic wastes produced during mining by using an alternative method. The PoS is an eco-friendly solution that protects the long-term sustainability of the environment.
Additionally, people use the mechanism to advocate for changes in the environment through cryptos that use it. For instance, due to energy efficiency concerns, Cardano surged by over 13% after Elon Musk suspended the program that allowed people to purchase Teslas with Bitcoin (BTC). Other PoS cryptocurrencies, such as Polygon’s MATIC, increased in price following Musk’s turnaround in supporting the use of less energy in crypto. The PoS systems have been deemed more efficient as they care for the environment.
Cryptocurrencies on the PoS mechanism offer diversity. This indicates that plenty of investors and communities are keen on funding cryptocurrencies that contribute to energy efficiency in the crypto space. Some investors support the community through grants that transform blockchains from PoW to PoS systems, for instance, Ethereum. The community ideally ensures that the energy usage is online and does not contribute to carbon emissions compared to other mechanisms that mine coins. The more people switch to PoS, the more they save the environment from mining harm and pollution.
The mechanism ensures that it will provide an alternative that does not use processing power to win a mathematical race. The person stakes and can lock the finances into a smart contract and reinforce the network’s resilience. With such odds, the electric consumption of crypto mining is reducing, and it will reduce the adverse effects it has on the environment.
Proof-of-Stake Environmental Friendliness Eases Crypto Adoption
The PoS mechanism helps ensures that people avoid using a larger energy footprint. Less energy consumption produces positive environmental impacts and reflects well on the crypto industry. A researcher at the Ethereum Foundation dealing with decentralized computer systems and blockchain technology, Danny Ryan, once highlighted that the Pos method is a fundamental breakthrough for humanity that allows the foundation to do things it could not otherwise do.
This means that both committed environmentalists as well as those who are ‘going green’ are more likely to invest in the space and to use cryptocurrencies in their day-to-day lives.
The continuing support for Proof-of-Work
There are concerns by some Decentralized Finance (DeFi) advocates that the proof-of-stake method cannot offer truly decentalized capabilities. Some of these proof-of-stake devotees fall into the ‘Bitcoin Maximalist’ camp, which refers to those who believe Bitcoin to be the only ‘real’ cryptocurrency. It’s seen by some as a libertarian-utopian view of the space, although it’s one that is certainly widespread. In fact, there is actually a ‘green case’ for Bitcoin that some are starting to make.
You can read an in-depth exploration of Proof of Work and Proof of Stake in our in-depth piece.
