Does Proof of Work Have a Future?
Some reasons why Proof of Work will be battle tested in the near future
Hey DEFI TIMES community,
At this point, we are all aware of Elon Musk's tweets about Bitcoin. With his tweets, he likes to troll around and confuse people - especially the crypto community. Elon's tweets have shaken the crypto world to a point where people couldn't handle the volatility anymore... and left.
In my opinion, he's doing it for entertainment purposes. He loves messing with things! Billionaires get bored too!
Besides all the noise and nonsense, one of his tweets stood out to me:
With this tweet, Elon criticized Bitcoin's energy usage. He claims that Bitcoin mining increasingly depends on fossil fuels.
I think this was the point when the crypto community really woke up to the fact that environmentally friendly blockchains could become more and more important.
Proof of Work requires a lot of energy, and it is designed to increase energy consumption over time.
Now, the question is: What could this mean for Proof of Work in general?
Could this mean that its days are numbered? What does Ethereum's future have to do with it?
Let's find out!
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Does Proof of Work Have a Future?
What is Proof of Work, and Why Does It Require So Much Energy?
Proof of Work is the oldest type of consensus algorithm. Blockchains are just databases that are stored on different computers. Because there are so many computers (nodes) in the network, we need a way for all nodes to find consensus. That means that all nodes need to agree on a specific version of the database.
Proof of Work is one way to find consensus among nodes. It works like this:
Many computers try to solve a highly complicated mathematical problem, which can only be solved by guessing many numbers. The more guesses a minder makes, the higher his chances are to win the competition. The first miner to guess the correct number will create the next Bitcoin block.
Miners are honest network participants because they spend a lot of energy trying to guess the numbers. Because it's so expensive to participate in Bitcoin mining, miners make sure that they are honest. If they honestly create the next block, they receive a block reward to cover their energy costs.
Participating in Proof of Work requires a lot of computing power and is therefore not very energy-efficient.
Elon Musk addressed this problem: more and more miners rely on fossil fuels to mine their blocks.
However, the problem gets worse: Since miners are incentivized to outcompete other miners, they will spend more and more energy over time - Bitcoin’s hash rate only goes up!
If miners increasingly use fossil fuels for mining, Bitcoin could face a severe energy crisis.
Is Proof of Stake the Solution to Bitcoin's Energy Problem?
Ethereum will switch to Proof of Stake shortly, which requires much less energy than Proof of Work. It's another type of consensus algorithm providing the same security while simultaneously solving Bitcoin's energy problem.
Even though Elon criticized Bitcoin's energy usage many times, he never talked about Proof of Stake as a possible solution. It's hard to say why.
Maybe he's too uneducated in the crypto space; maybe he didn't do his research. Whatever the reason is, he will certainly not be able to ignore it in the near future.
When Proof of Stake ships, it will change the crypto space forever. Combined with sharding, it will make Ethereum much more scalable and energy-efficient - no need for big computers spending huge amounts of energy to secure the network.
In Proof of Stake, stakers validate blocks to keep the network running. Everyone is able to participate: You only need 32 ETH to run your own validator. You can even use shared validators, which require less ETH.
The entry requirements are much less significant than with Proof of Work. If you want to participate in Proof of Work, you first have to purchase millions of dollars worth of ASIC miners to stand a chance against competitors.
Validators only need a small computer to run their own node. A simple personal computer is just fine because Proof of Stake doesn't require much computing power.
What happens to Proof of Work in the long run?
So Proof of Stake is more energy-efficient, scalable, and fairer than Proof of Work. But what does this mean for Proof of Work in the long run?
It's hard to say. However, if the energy debate that Elon kicked off continues, Bitcoin could face an enormous problem going forward. On the other hand, Ethereum could immensely profit from this environmental thinking. The trend is clear: people want to protect the environment at all costs. Why should they stop when it comes to blockchains?
I can imagine Bitcoin suffering a lot from this trend. On the flip side, I don't think that it will kill Bitcoin either. As always, the truth lies somewhere in the middle. Bitcoin miners will have to focus on renewable energy. Otherwise, Bitcoin could be in severe danger, and other blockchains, which require less energy, could take off!
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DISCLAIMER: All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the writer, who is not a financial advisor.
Do your own research before you purchase cryptocurrencies. Any cryptocurrency can go down in value. Holding cryptocurrencies is risky.