One of the major pushbacks to the adoption of blockchain is its impact on the environment. The proof-of-stake (POS) consensus mechanism significantly reduces the technology's carbon footprint.
To put POS energy consumption into perspective, it is important to understand where the view that blockchain is harmful to the environment comes from.
The Bitcoin network, the first-ever blockchain, uses the proof-of-work (POW) consensus mechanism for bitcoin transactions. This is an energy-intensive system that requires bitcoin mining to maintain transaction ledgers or smart contract states on peer-to-peer (P2P) networks.
According to the Cambridge Bitcoin Electricity Consumption Index, the annualized energy consumption of the Bitcoin network is close to 200 terawatt-hours (TWh). This is almost equal to the amount a sizable country like Sweden consumes.
Meanwhile, the annualized POW Ethereum network consumption is about 100 TWh, half that of Bitcoin, but still quite high. The world has been introduced to the blockchain through Bitcoin and Ethereum.
Indeed, the native digital currencies of these two blockchains have the first and second highest capitalization in the crypto marketplace.
After getting used to Bitcoin and Ethereum, the world is noticing that blockchain does not have to consume huge amounts of electricity to be viable. And that the benefits of the technology do not have to come at a high cost to the environment.
Less than three years after Bitcoin was launched, a blockchain core developer using the Pseudonymous name Sunny King found a way to re-design the blockchain consensus mechanism so that it did not need high computational capacity and, therefore, a lot of electric energy.
Sunny King named the new design Proof-of-Stake. It could not be implemented on the Bitcoin network as that would require a significant upgrade, which was not possible then. Instead, Sunny King used it on Peercoin, a new blockchain (and digital currency) he launched in 2012.
The use of the proof-of-stake consensus protocol translates to less carbon footprint for the entire network and the applications and systems implemented on top of the blockchain. The difference between how much electric energy POS needs and what POW consumes is vast.
In a blog post, Carl Beekhuizen, a researcher at the Ethereum Foundation, has indicated that Ethereum's energy usage will decrease by 99.95% after the network transitions from Proof of Work to proof of stake. Indeed, the Ethereum network is in the process of replacing POW with POS.
Besides cutting blockchain power consumption significantly, the proof-of-stake consensus mechanism makes the use of renewable energy sources more sustainable.
While POW can transition to consuming green energy and therefore have a less negative impact on the environment—there is no authority to enforce that—with its huge consumption, it can easily take energy from other sectors of the economy.
Indeed, in late 2021, Swedish and Norwegian environmental regulators petitioned the European Union to spearhead a ban on POW cryptocurrency mining. In their opinion, if not checked, it would put pressure on the supply of renewable energy.
"Sweden needs the renewable energy targeted by crypto-asset producers for the climate transition of our essential services, and increased use by miners threatens our ability to meet the Paris Agreement," Björn Risinger, director of the Swedish Environmental Protection Agency had stated.
With the significantly reduced consumption in POS, blockchain can use green energy without significantly impacting what amount of it other sectors get.
Proof-of-stake also creates more opportunities for scaling the capacity of the blockchains. While the Bitcoin blockchain, for example, processes about seven transactions without layer two scaling solutions, and Ethereum 15, most of the POS blockchains can process up to 100,000 transactions.
That is possible through architectures made possible by POS, such as sharding.
Proof-of-stake is a consensus mechanism that helps computers on a peer-to-peer network function as a unit. The consensus mechanism turns a P2P network, which has no central authority to coordinate processes, into a virtual machine that hosts and runs different types of applications.
POS is the automated process through which a node is picked to update the ledger or smart contract state on behalf of the network. The POS protocol is designed so that it is the number of native coins in a wallet that determines if the node is picked.
In contrast, it is the performance in solving a mathematical problem that is used in the proof-of-work, and it is a process that consumes a lot of energy and requires significant computing power.
The more stake of native digital coins a node has, the more chances it has to be picked to update the ledger and earn the reward, newly minted coins, and fees paid by network users.
Proof-of-work was the first consensus mechanism to be used on a blockchain. Proof-of-stake was the second. However, these two are not the only consensus mechanisms used by blockchains.
POS has several variants that are used on different blockchains. The most used variants are Proof of stake velocity and delegated Proof of stake.
There are close to 30 other blockchain consensus mechanisms that have been designed. Some have been implemented, and others are just designs in technical white papers.
The list of alternative consensus mechanisms includes Proof-of-History, Proof-of-Authority, Proof-of-Memory, Proof-of-Weight, Proof-of-Reputation, Proof of Elapsed Time, and Proof-of-Burn.
While most of the other consensus mechanisms are designed to be energy efficient, they either have not been tried enough or cannot be applied to multipurpose blockchains.
The team behind the project has built the capacity to help businesses, institutions, and other enterprises to benefit from the best that blockchain technology can offer.
The Casper Network is one of the blockchains that use the energy-efficient proof of stake consensus mechanism.
Image courtesy of Pixabay.
