27 Feb
Blockchain is a world-known technology that has a plethora of implications in our time. For example, businesses already widely use blockchain technology for customer loyalty. Although the blockchain is often renowned to be innovative, there have been more and more concerns about technology’s energy consumption, which is widely linked to unpleasant environmental outcomes. In this blog post, we will discover what actions were taken to transform blockchain into a more environmentally-friendly innovation by switching to proof-of-stake (PoS) and away from proof-of-work (PoW) consensus algorithms.
Proof-of-work: Thailand or blockchain?
Did you know that the blockchain consumes as much energy as the entire country of Thailand each year? This is around 204,5 TWh (Terawatt Hour) or 204,5 billion kWh, to be exact. Just to show how big this number is, remember that an average household in Amsterdam uses around 2930 kWh per year. Massive numbers, aren’t they? But let us explain why exactly blockchain technology uses up so much.
The blockchain functions by adding a new block to an existing chain of blocks, where different kinds of data are securely stored. An important implication here is that once the block of data has been added to the blockchain, it can never be deleted or changed. In order to ensure that the added block is legitimate, the computations utilize a consensus mechanism – a process that validates the new blocks. Proof-of-work (PoW) is the most famous consensus mechanism and is directly related to the process of mining.
That is, individuals compete with each other by performing computations to submit a legitimate block that meets the network’s regulations. PoW, in turn, selects “the winner” of “the race”, adding the solved block to the blockchain and awarding the winner with cryptocurrency. Regardless of the generous prize, miners must make a great investment to actually solve the “blockchain puzzle”. It is because it takes a lot of guessing attempts to find the solution and wait for other participants to check if the solution is actually correct. Henceforth, this is exactly where all the energy goes – performing the computations again and again to receive the reward.
Proof-of-stake: mint, don’t mine!
Such massive energy consumption led to an increasing concern for the environment. Thus, more sustainable ways to acquire blocks in the blockchain were called upon. In this context, sustainability refers to the ability of the technology to operate in an environmentally responsible way without compromising its security or performance. This means minimizing energy consumption, reducing carbon footprint, and optimizing resource utilization while maintaining the required criteria. That is where proof-of-stake comes into play.
PoS was introduced in 2011 as a new consensus mechanism to address the inefficiencies of PoW. Unlike the latter, proof-of-stake is not built on mining, but rather on validation and “minting”. More specifically, individuals interested in adding a new block simply need to show that they own a certain amount of cryptocurrency that is native to the blockchain.
Then, PoS picks the validator (block creator in PoS) who creates the new block based on the number of crypto coins they own (the more you own, the higher the odds you will be picked). In the end, validators receive transaction fees as a reward, as opposed to cryptocurrency in PoW. Therefore, PoS requires much less computational power and, therefore, participants no longer need specialized hardware for mining. This way, PoS solves the energy consumption issue of PoW.
Web3: Modern food for brains
Authic is passionate about sustainable blockchain. That is why we use minting (proof-of-stake) in our white-label solution. If you are interested in learning more about blockchain, metaverse, and web3, check out Authic’s other blog posts here.
Do you think blockchain can get even more sustainable in the future?
