Competitors are milking Elon Musk’s misconceptions about Bitcoin’s energy consumption for all their worth. The general public and legacy media won’t shut up about this previously resolved can of worms. And when Vitalik Buterin, co-founder of Ethereum, received the question, he didn’t hesitate. Fortune quotes Buterin going all-in for Proof-Of-Stake, his consensus mechanism of choice:
“Proof-of-stake is a solution to the [environmental issues] of Bitcoin—which needs far less resources to maintain,” Buterin said at the StartmeupHK virtual festival in Hong Kong.
When pressed with Ethereum still being under a Proof-Of-Work consensus mechanism, Buterin said that the Ethereum network will reduce its emissions “by a factor of 100, or even 10,000” once they switch it to PoS. When pressed for a date, Buterin said:
“[We thought] it would take one year to [implement] POS… but it actually [has] taken around six years” due to the complexity of building such a model.
Brief Definitions Of PoW And PoS
This is not the time or the place for a complete guide, but, basically:
- Under a Proof-Of-Work consensus mechanism, the miners compete by solving complex cryptographic puzzles and the winner gets to validate a block of transactions and add it to the blockchain. This generates decentralization, as it doesn’t need a central authority to decide who gets to validate each block.
- Under a Proof-Of-Stake consensus mechanism, the validators stake their coins for a fixed period of time. During that period, they get to propose and vote on blocks. The weight of each validator’s vote is proportional to the number of coins he or she is staking.
Is Proof-Of-Stake Better For The Environment?
It might very well be, but… does PoS secures and guarantees the fair operation of the network like PoW does? No, it doesn’t. And it gives an unfair advantage to the rich and famous, just like almost everything in the world we’re currently living in. Plus, it gives crypto exchanges and other large custodians the possibility of taking over the network.
Let’s quote Nic Carter’s “Noahbjectivity on Bitcoin Mining,” which would also serve as an elegant response to Elon’s concerns. But anyway, about PoS he said:
This is a cornerstone of the anti-Bitcoin energy argument: the notion that you can have something for nothing with Proof of Stake. No energy consumption, yet still a functioning decentralized consensus. If this logic reminds you of perpetual motion machines, it’s because that’s exactly what is being proposed here: a completely free lunch where you get precisely the same assurances as Bitcoin with no costs whatsoever.
Lessons From The Bitcoinist Book Club
Be sure to notice that the distributed energy consumption secures the network. A bad actor would have to use a similar amount to take control of it. Plus, all that energy is one of the factors that give Bitcoin its value. As we learned in our study of Saifedean Ammous’ “The Bitcoin Standard”, money has to be “costly to produce:”
“It therefore follows that for something to assume a monetary role, it has to be costly to produce, otherwise the temptation to make money on the cheap will destroy the wealth of the savers, and destroy the incentive anyone has to save in this medium.”
If it’s difficult to produce new “monetary units,” that’s “hard money.” If it isn’t, then it’s “easy money.” Over time, people who use hard money will tremendously outperform people who use easy money.
Under Proof-Of-Stake, the cost is to leave your crypto stagnant for a fixed period. Ok, but, what gives value to those coins in the first place?
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