Coal was the fuel that powered the Industrial Revolution, bootstrapping the modern age as we know it. Acquiring it was simple, using it was easy, and it got the job done. Coal was the perfect resource. Back in those days, efficiency and cleanliness weren’t concerns because of ecological immaturity (society didn’t know any better) and scale (industry wasn’t big enough to impact the world sufficiently to raise concerns).
Cryptocurrency mining is today’s coal mining, and it’s time to start considering alternative solutions.
With any currency (traditional or cryptographic), a few constraints must be in place: a unit of currency cannot be spent more than once (no “double spending”), transactions must complete in a timely manner, and everyone must agree when a transaction is complete. With traditional paper money, it’s clear how all of these constraints are satisfied: counterfeiting is made difficult by secure notes and strongly discouraged by legal means, the transaction completes when physical possession of the note is transferred, and all parties can look at their physical possession of notes to determine a transaction’s state.
Implementing these constraints digitally is more difficult than when using physical items. Bitcoin, being the world’s first cryptocurrency, used the best solutions available. The system bitcoin leverages is known as blockchain with “proof of work.” Bitcoin uses a series of blocks, appropriately referred to as a blockchain, that forms a ledger which records the state of every bitcoin since bitcoin’s inception. Each block records the movement of a number of bitcoins between owners: the proof. In order for a block to be valid, it can include each coin at most once (to prevent double spending); it must include the unique identity (the hash) of the previous block; and it must include the solution to a difficult math problem (a cryptographic hash). The process of solving these problems to form valid blocks is known as mining and those who do so are called miners.
Solving these mining challenges takes hardware, infrastructure, cooling, and the electricity to keep it all going. To incentivize the block discovery process, the system rewards the miner with a predetermined amount of currency. To satisfy the need for timely transactions, each includes a transaction fee to be awarded to the miner. Therefore a miner wants to include as many transactions as possible into a block in order to collect the greatest amount in fees. Once a block has been mined, it’s shared to the public so anyone can verify that there was no double spending, and that the cryptographic hash is valid. Miners only mine new blocks on top of valid ones.
As cryptocurrencies grow more valuable, the mining rewards grow as well, making mining increasingly lucrative. This draws in more miners which, in turn, uses more energy. As of November 2017, each bitcoin transaction now uses as much energy as the average American house consumes in a week. Furthermore, as a country, bitcoin now ranks as the 69th highest energy consumer.
Just as coal was a great way to bootstrap industry, proof of work has done a great job bootstrapping cryptocurrencies. But neither coal nor proof of work are viable paths forward; they’re simply too polluting. So what are the solar panel and wind turbine analogues for cryptocurrency?
One system is proof of stake. At a high level, this system limits miners’ output in proportion to the total amount of currency the miner owns. For example, if there are 200 units of currency total and a miner owns 10 units, that miner may only contribute 5% of the mining power. In this way, there’s no race for miners to acquire massive computational resources. This system has other advantages over proof of work as well including avoiding the 51% attack problem. Ethereum, the second largest cryptocurrency by market capitalization, is currently in the process of switching from proof of work to proof of stake. Ark, Dash, and Neo are examples of cryptocurrencies currently using a proof of stake system.
Another system is known as “the tangle,” currently only used by the IOTA cryptocurrency. The tangle’s alternative methodology provides many advantages over blockchain, including zero transaction fees, no miner energy expenditure, and greater decentralization. However, analogous to alternative energy sources in days past, the tangle today is not as proven, researched, tested, or understood as well as blockchain systems are.
In this modern age of global climate change, the world needs to abandon proof of work systems. With their energy expenditures exceeding that of most countries, the cost to the environment is simply too great to continue down this path, especially since alternatives already exist. Like modern industry’s move away from familiar, reliable coal, it’s time for the cryptocurrency community to move on from proof of work to better, more responsible solutions.