Sustainable energy has been a passion of mine since as far back as I can remember. This prompted me to do a bachelor’s degree in environmental science and learn a lot more about the world that we live in. The world is a complicated place and I don’t want to oversimplify it. Humans are complicated creatures too and sometimes we choose to do things in a way that makes little sense if you look at it from a macro perspective. Yet, this is how societies evolve, people make mistakes and learn from them! (if they survive)
I am most interested in how humans find a balance with nature and live more fulfilling lives without making things worse for anyone else. This is in essence why ‘sustainability’ is called sustainability – it means that you can repeat these actions again and again, for every person on earth until the end of time and still not deplete the pool of resources that you originally started out with. This is obviously not true for a great majority of the activities that we label as sustainable. We see that conditions have changed drastically from the time of our parents to what we are experiencing now. There are fewer fish in the sea, giant lakes have dried up, glaciers are melting ever faster, and forest fire seasons are getting longer and more unpredictable. It is due to this that insurance companies are changing their policies and deciding not to provide protection for certain types of events anymore. It just does not make financial sense for them anymore. Behaving in a way that adversely affect our future is not in our best interest as well, but that’s what governments around the world continue to advocate. No country or government anywhere seems to be treating the current situation with the seriousness that it deserves. But their purpose is not to change things for the better – it is to preserve the status quo and the interests of the people who have donated to have them elected.
Looking at the same issue in another angle, it’s unwise for any of us to wait for someone else to come along and help fix society or any of the environmental problems that we are facing today. It is for us to innovate and devise solutions that can continue to provide for people on this planet for many hundreds of years to come.
This is why it is important to investigate the various systems through with we can distribute the resources of our planet in a fair and just way. In the current system, a small minority of people have basically all the power and complete monopoly of the system. Let’s look at some ways in which blockchain technology can help us solve these issues.
Proof of work vs. Proof of stake
Bitcoin has come under a lot of heat recently after people started talking about how much energy is used in the process of mining. A lot has been lost in translation and people forget how this system came to be. I have spoken about mining in my previous article – you can take a look at it here.
Let’s cover the main differences between Proof of work (PoW) and Proof of stake (PoS) before we continue –
Both Proof of work and Proof of Stake are what’s known as a consensus mechanism. These consensus mechanisms help people within these networks add new blocks to the blockchain and update the ledger. This facilitates transactions and helps people to conduct business in a decentralized manner.
The proof of stake system has attracted a lot of attention in recent days, with Ethereum switching over to this system from the proof of work system. Proof of stake is an alternative process for transaction verification on a blockchain. It is increasing in popularity and being adopted by several cryptocurrencies. To understand proof of stake, it is important to have a basic idea of proof of work.
Proof of work
Proof of work is a mining process in which a user (miner) installs a powerful computer or mining rig to solve complex mathematical puzzles (known as proof of work problems). Once several calculations are successfully performed for various transactions, the verified transactions are bundled together and stored on a new ‘block’ on a distributed ledger or public blockchain. Mining verifies the legitimacy of a transaction and creates new currency units.
The work must be moderately difficult for the miner to perform, but easy for the network to check. Multiple miners on the network attempt to be the first to find a solution for the mathematical problem concerning the candidate block. The first miner to solve the problem announces their solution simultaneously to the entire network, in turn receiving the newly created cryptocurrency unit provided by the protocol as a reward.
As more computing power is added to the network and more coins are mined, the average number of calculations required to create a new block increases, thereby increasing the difficulty level for the miner to win a reward. In proof of work currencies, miners need to recover hardware and electricity costs. This creates downward pressure on the price of the cryptocurrency from newly generated coins, thus encouraging miners to keep improving the efficiency of their mining rigs and find cheaper sources of electricity. This is where the Proof of work concept ties into renewable energy and utilizing resources that would otherwise go to waste.
Our society is by no means efficient, and we do not consume energy at constant rate either. Wind power, solar power, biogas, geothermal, tidal energy, wave energy and hydroelectricity are just a few of the renewable sources of energy that we have at our disposal. If we could only tap into these nearly endless resources then we would have no need for banks and other centralized financial institutions to help us transact with one another.
Bitcoin Cash is an example of a cryptocurrency that uses the proof of work system.
Proof of Stake
Unlike the proof of work system, in which the user validates transactions and creates new blocks by performing a certain amount of computational work, a proof of stake system requires the user to show ownership of a certain number of cryptocurrency units.
The creator of a new block is chosen in a pseudo-random way, depending on the user’s wealth, also defined as ‘stake’. In the proof of stake system, blocks are said to be ‘forged’ or ‘minted’, not mined. Users who validate transactions and create new blocks in this system are referred to as forgers.
In most proof of stake cases, digital currency units are created at the launch of the currency and their number is fixed. Therefore, rather than using cryptocurrency units as reward, the forgers receive transaction fees as rewards. In a few cases, new currency units can be created by inflating the coin supply, and forgers can be rewarded with new currency units created as rewards, rather than transaction fees.
To validate transactions and create blocks, a forger must first put their own coins at ‘stake’. Think of this as their holdings being held in an escrow account: if they validate a fraudulent transaction, they lose their holdings, as well as their rights to participate as a forger in the future. Once the forger puts their stake up, they can partake in the forging process, and because they have staked their own money, they are in theory now incentivized to validate the right transactions. This means that people who already hold a large number of coins are rewarded for being rich.
This is quite different to the Proof of work model which is more similar to running a successful business. You need to be efficient and smart to make a profit. Which also means that people are less likely to sabotage something they have worked very hard for.
This system does not provide a way to handle the initial distribution of coins at the founding phase of the cryptocurrency, so cryptocurrencies which use this system either begin with an ICO and sell their pre-mined coins, or begin with the proof of work system, and switch over to the proof of stake system later.
Some of the major differences are -
Proof of Work (PoW)
The probability of mining a block is determined by how much computational work is done by miner.
A reward is given to first miner to solve cryptographic puzzle of each block.
To add each block to chain, miners must compete to solve difficult puzzles using their computer process power
Hackers would need to have 51% of computation power to add malicious block. This would only be possible if the 3 biggest mining pools -consisting of thousands of miners- all went rogue together.
Proof of work systems are less energy efficient and are less costly but more proven.
Specialized equipment to optimize processing power.
Initial investment to buy hardware
Proof of Stake (PoS)
The probability of validating a new block is determined by how large of a stake a person holds (how many coins they possess).
The validator does not receive a block reward instead they collect network fee as their reward.
There is no competition as block creator is chosen by an algorithm based on user stake.
Hackers would need to own 51% of all currency on network, which is practically impossible.
Proof of Stake systems are much more cost and energy efficient than POW systems but less proven.
Standard server grade unit is more than enough.
Initial investment to buy stake and build reputation.
Some of cryptocurrencies that use different variants of proof-of-stake consensus are: EOS (EOS), Tezos (XTZ), Cardano (ADA), Cosmos (ATOM), Lisk (LSK).
Bitcoin is most well known crypto with a Proof-of-Work consensus building algorithm which uses most well known proof-of-work function is called SHA256.
The purpose of this article is to give you an understanding of the two methods and how they differ. If the Bitcoin Cash (BCH) blocks is fully used for payments,
the energy cost per transaction gets as low as $0.01. Optimal energy efficiency is still far from ideal and needs to be improved significantly – but it just goes to show that the proof of work model can also be run efficiently in the future.
I feel that it is important to tie the value of any currency to real world assets such as time, energy and investment in hardware. This means that a person has to invest their time and effort into something - which in turn gives that something value. It allows for more equitable distribution of the new coins mined and provides a more secure network overall. We will discuss this further in another article. It appears that there is a clear trade-off that must be made between the cost of mining and the level of trust required of other participants in the blockchain.
