Cryptocurrency is always innovating, and perhaps the biggest news right now in Crypto World is Ethereum completing its transition to Proof-of-Stake (PoS). Ethereum is the world’s second largest cryptocurrency network, second only to the almighty Bitcoin, and with this move to PoS, Ethereum is setting itself apart from Bitcoin in a very meaningful, and sustainable, way.
Since the dawn of Bitcoin, crypto critics warned about the infinitely growing energy use such a blockchain network would demand. As each Bitcoin would get progressively harder and harder to mine, it would require more and more computing power, and their dire future played out much as predicted, but with a whole stable of never-ending altcoins using similar Proof-of-Work (PoW) mining protocols. It’s not just Bitcoin, but the whole cryptocurrency uses between 120 and 240 billion kilowatt hours per year. According to the White House, this is more energy use than some individual countries.
While this number is still under 1% of our total global energy usage, the potential for persistent exponential growth is cause for alarm. Even if you’re not concerned about global climate change, you have to consider the sheer practicality and costs of using so much energy running blockchains.
This is where PoS blockchains come into play. PoS is an innovation that saw the downsides of PoW and came up with a solution that would be nowhere as energy-intensive. With a PoW blockchain, computers work on solving a complicated hexidecimal code, referred to as a hash. This requires a lot of processing power to work through all the possibilities until the correct sequence is “guessed” and the miner is rewarded with cryptocurrency for their effort.
However, a PoS blockchain differs because users instead put up their “stake” of cryptocurrency as collateral in the process of validating the blockchain’s ledger. Should they incorrectly validate something, their staked crypto would be burned, creating a disincentive to try and alter the blockchain. Users are instead rewarded for properly validating transactions, but without having to use the immense computational power required with a PoS system.
Aside from the decreased energy use, proponents of PoS also say that it is a much more secure system. One common fear in the crypto space is called a “51% attack”. Because blockchains work on consensus, if any one person (or group) is able to control 51%, they can write whatever they want into the blockchain. With a PoW system, such an attack would only need to control 51% of the miners of the network. For something large like Bitcoin, that might be hard to do, but there are still fears that individual countries could pool together enough computational resources to hit that 51% mark. With PoS, though, attackers would have to own 51% or more of all the staked cryptocurrency of the network. This would be very expensive in many cases, and the staked cryptocurrency could be lost if an attack is attempted but fails. Other validators would essentially vote against the attackers’ improper validations, and the attackers’ staked crypto would vanish. When a PoW attack fails, the attackers only lose their time and energy costs, but are otherwise not punished for the attempt.
PoS has been around for a while now, and certainly a lot of the newer popular blockchains like Solana, Cardano and Algorand are PoS. However, nobody has yet dethroned the original Bitcoin and its PoW system, and right now it’s looking like that probably won’t happen anytime soon. Still, for people looking to the future, there is certainly great appeal with PoS.
Ethereum’s founders realized this and made the switch. The blockchain originally began as a PoW system, but has transitioned to PoS. During this transition, users who had staked their Ethereum could begin earning rewards but weren’t able to unstake their holdings until a recent update, dubbed “Shapella”, which happened earlier this month.
Now Ethereum’s blockchain is fully transitioned to Proof-of-Stake, and that’s a big change for the blockchain’s carbon footprint. Estimates put the reduction at 99.99%! The network had been on track to hit 21.4 terrawatt hours by the end of the year, but is now expected to only require around 6.6 gigawatt hours annually.
Of course, it’s not like people are shutting down their mining equipment. Most crypto experts assume that Ethereum’s transition to PoS won’t do much to decrease the overall energy use of cryptocurrency blockchains since hardware that would have been used to mine Ethereum will simply be redirected to mining on a different blockchain, perhaps Bitcoin.
But PoS blockchains have been very popular, and will likely continue increasing in popularity. For people who are concerned about global climate change and want to lower carbon emissions, there’s no doubt they will be more adamant about supporting PoS blockchains over PoW ones, and in cryptocurrency, support is everything. While there are great technical points to be made on either side, the simple notion that Ethereum is better for the environment could go a long way in attracting users. Plus, staking is generally more accessible than mining, which requires extensive hardware setups and technical skill. You can earn Ethereum, or any other PoS cryptocurrency, just by owning some of it and staking it with a validator. And who doesn’t love making money without having to do anything?