Ethereum moved to proof of stake. Why can’t Bitcoin?
Bitcoin mining, the computationally intensive process by which new coins are created and accounted for, has become a global concern. After China clamped down on the process in mid-2021, miners sought out other areas of the world where energy was cheap but not always clean. In places like Kazakhstan, miners put pressure on the power grid, which relies heavily on carbon-intensive coal-fired power plants, causing localized blackouts and contributing to civil unrest. In New York state, where miners took over shuttered factories and empty warehouses, locals have complained about rising energy bills and the high-frequency whine of whirring data center fans — and worried about the environmental toll mining takes. The US currently hosts 38% of all bitcoin mining.
A single Bitcoin transaction uses the same amount of energy as a single American household does in almost a month. But does it have to be that way? The Bitcoin community has historically been fiercely resistant to change, but pressure from regulators and environmentalists fed up with Bitcoin’s huge carbon footprint could force them to reconsider that stance.
A number of other countries, including Kazakhstan, Iran and Singapore, have also imposed limits on crypto mining. In April 2023, the European Parliament is set to pass landmark crypto legislation called Markets in Crypto Assets (MiCA), which mandates environmental disclosures from crypto firms. The law is expected to enter into force sometime in 2024.
It could be just the beginning for the EU: The European Central Bank has previously stated that it cannot imagine a world where governments will ban petrol-powered cars in favor of electric vehicles, but not act on Bitcoin’s persistence in pumping out CO2. “Some members of the European Parliament are already wondering why Bitcoin is not following Ethereum,” Alex de Vries, the data scientist behind Digiconomist, a website that tracks cryptocurrency energy use, told MIT Technology Review.
Efforts to crack down on Bitcoin’s waste are gaining momentum in the United States as well. In November, New York became the first state to pass a temporary ban on new permits for cryptocurrency mining at fossil fuel facilities. The new law also requires New York to study cryptomining’s impact on the state’s efforts to reduce its greenhouse gas emissions.
So what does it take to switch?
Proof of work vs. proof of effort
Cryptocurrencies have no central guardian, like a bank, to oversee their public ledger – the shared digital record of every transaction on the blockchain. Instead, they rely on consensus mechanisms to agree on updates. As proof of work, the approach Bitcoin relies on, a worldwide network of computers — known as “miners” — spends electricity trying to win a kind of lottery. Whoever wins gets to add the next block and collect new coins in the process. The chance of winning is directly proportional to the number of calculations a miner makes. As a result, massive server farms have sprung up around the world dedicated solely to winning this lottery.
Proof of Stake, the approach Ethereum now uses, removes this huge energy drain. Instead of miners, proof-of-stake systems use a large number of “validators”. To become a validator, you need to deposit, or “stake,” a certain amount of coins – 32 Ether, in the case of Ethereum. Staking gives validators a chance to check new blocks of transactions and add them to the blockchain so they can earn rewards on top of their stake coins. The more coins you stake, the better your chances of being selected to add the next block of transactions to the chain.
