The massive energy consumption of bitcoin has been a hot issue as it is estimated to require more electricity than 159 countries. As a potential global currency, bitcoin could also potentially threaten our environment because of this energy requirement. However, this massive energy consumption of cryptocurrencies is expected to go down drastically. Why?
Before going into that, it would be better to understand why bitcoin consume such a huge amount of electricity. There are three known factors that contribute to its energy requirement:
- Artificial scarcity – leading to many, many miners
- Increasingly tight competition for the remaining few million coins – leading to more computers needed and thus higher consumption of electricity
- Proof-of-work approach in validating sources
Bitcoin can thus be regarded as a multiplication of problems: the high energy required to solve Byzantine General’s problem × increasingly many miners or people trying to solve the problem × proof-of-work approach.
More importantly, the proof-of-work approach in validating sources or solutions to the Byzantine General’s problem is already obsolete. With these complications of bitcoin, it is therefore considered as inefficient digital currency from a resources perspective. Bitcoin though remains elegant as the pioneer in cryptocurrency.
These attributes of bitcoin as a digital currency make it slower and more expensive to transact compared with other cryptocurrencies. Consequently, bitcoin will sooner or later become a rarely turned over asset.
Proof-of-work vs. Proof-of-stake
Cryptocurrencies are digital assets that utilize cryptography in creating additional units or blocks and verification of transactions. A cryptocurrency blockchain network chooses which users can create the block or unit in two ways: proof-of-work approach and proof-of-stake approach.
In the proof-of-work algorithm, complex mathematical puzzles or problems are used to validate transactions and create new blocks. On the other hand, proof-of-state approach utilizes different combinations of random selection and wealth or age in choosing the creator of additional blocks.
In this regard, the proof-of-state algorithm reduces the competition between miners and thus requires much lower energy than the proof-of-work approach.
Ethereum and NEO
Like Bitcoin, Ethereum has been employing the proof-of-work algorithm, and thus consumes much energy. However, it is expected to drop dramatically as it moves to its Casper proof-of-stake model. The validation of transactions will then be much easier and no competition between miners. Since the vast majority of cryptocurrencies are based on Ethereum and provided that they will follow this move, then a massive drop in energy consumption is foreseen in cryptocurrency realm.
Next-generation cryptocurrency, such as NEO, consumes much lower energy and attendant carbon footprints. NEO employs a more optimized proof-of-stake algorithm called the delegated Byzantine Fault Tolerance, which selects block creators mostly through random selection.
[via Clean Technica]