Proof of Stake Technology Corrects Cryptocurrency Power Consumption
Much like mining in the real world, people who mine cryptocurrency use powerful equipment to increase their chances of finding valuable resources.
But all this energy comes at a cost: namely, massive energy consumption. However, an alternate method of unearthing digital gold could change all that. This is called ‘proof of stake’, and it is a much more efficient form in terms of cryptocurrency mining calculation.
A very brief explanation of crypto mining
This section could fill an entire book, but the very basic idea is that cryptocurrencies are decentralized, which means that there is no “bank” that holds all digital coins.
To compensate for this, everyone who mines crypto keeps a “ledger” known as a blockchain.
When a new allocation of a cryptocurrency is released into the system, it is an extremely complicated mathematical problem. At this point, all the miners try to solve the equation; the first miner to do so succeeds in adding the next block to the blockchain and is rewarded with cold, hard cryptocurrency.
All the other miners – or “nodes” – on the network then get an updated version of the blockchain, and they all check it to make sure everyone has the same version. This is how the blockchain maintains its integrity. Anyone who buys and sells cryptocurrency – most of which is not involved in mining – benefits from the existence of this universally accessible blockchain.
Computers Mo, Mo crypto
See where this is going, yes?
In the race to solve these lucrative math problems, the more processing power you have as a miner, the more likely you are to crack the code.
So while I, a simple one, have a long-toothed desktop computer that I bought during the Obama administration trying to make lucky guesses every now and then, well-heeled miners are buying thousands of dollars. ‘computers and chain them all together.
And while leaving my faulty computer running 24/7 to mine crypto isn’t exactly the most energy efficient use of resources, imagine a whole warehouse of computers running around the clock. 24.
To know: we now have revealing statistics, like that of the Bitcoin network uses more energy per year than Norway.
Another fun fact: to avoid inflation, the more miners there are on the Bitcoin network, the more difficult the problems become and the more computing power everyone needs.
The method of crypto mining described above is known as “proof of work” and is used by many cryptocurrencies, including many cryptocurrencies. You do the work, you get the reward. The more effort you put in – in this case, the computing power – the better your chances of successful mining.
With proof of stake, imagine a similar group of miners, except now they’re called “validators,” and the computing power doesn’t really matter.
The “stake” part of the proof of stake means that you, as the validator, have to put some crypto into the system in order to join the network. This is your stake. Your skin in the game, so to speak.
Then, when a new cryptocurrency allocation is released into the system, a validator is randomly selected to “forge” – instead of mine – the next block of the blockchain.
What’s the catch?
Ah, therein lies the catch. Your chances of being randomly selected to forge the next block increase with the size of the stake you have in the system.
So me, a simple, I put $ 100 to join the network. You, a successful crypto scholar, contributed $ 1000. Your chances of being chosen at random are 10 times better than mine.
It’s a bit like buying raffle tickets, but the idea is that you don’t need a supercomputer to try to solve math problems all day. You do have an obligation to keep a computer on and running all day long so you can help validate new blocks, but it can be a rickety old desk like mine.
When a cryptocurrency is built on proof-of-stake technology, the prospect of it gobbling up as much power as a good-sized country disappears. The big problem is that it’s not easy to transition from one currency from one system to another. There is currently an ongoing debate as to whether it would be possible to move Bitcoin, the biggest energy hog of all, from proof of work to proof of stake.
So the rich get richer, right?
Proof of stake does not inherently democratize cryptocurrency. Barriers to entry can be high: For Ethereum’s proof-of-stake technology, Ethereum 2.0, you will need to set up 32 Ether (the name of coins traded in the Ethereum system) just to get a seat in the Ethereum system. board. As of this writing, it is currently north of $ 80,000.
But there are a hundred more coin proof there, and there are some things a network can do, like evaluate the service life for validators, or the age of their parts, to reward them for being there in the early days. This is all still in its infancy, so give it some time. If this spreads, it won’t just be a boon for crypto fanatics – it will be good for planet Earth and all who inhabit it.