Confronting consensus: Will bitcoin ever switch to proof-of-stake?

While its competitors seek out alternatives, altering algorithms seems unlikely for bitcoin

Road signs, one with proof of work, another with proof of stake – Photo: Shutterstock                                 
Where will the crossroads take bitcoin? – Photo: Shutterstock
                                

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In recent years, bitcoin mining has risen to the top of the controversy pile in the cryptocurrency space. Intensive energy requirements stemming from the proof-of-work (PoW) consensus algorithm, and the environmental concerns that high energy usage brings, mean inational governments from China to Kosovo by way of Kazakhstan have blacklisted the practice of bitcoin mining.

Furthermore, bitcoin’s nearest competitor, Ethereum, looks likely to finally ditch proof-of-work for good in 2022, after deliberating on the transition to proof-of-stake (PoS) for a number of years.

So will bitcoin ever switch to proof-of-stake, or is proof-of-work here to stay for the world’s largest cryptocurrency? 

Proof-of-work versus proof-of-stake: a brief recap

For the uninitiated, proof-of-work (PoW) and proof-of-stake (PoS) represent two different methods for achieving consensus on the blockchain. While the technicalities of both are extremely complex, the key differences between the two are evident in their names. 

As a decentralised network, blockchain transactions are validated by a web of interconnected nodes that earn monetary rewards for accurately validating these transactions. To do this under proof-of-work, nodes compete to solve complex mathematical problems. The first to cross the finishing line gets a reward in the form of a newly minted bitcoin stash. Thus fortune favours those with the greatest processing power.

Proof-of-stake removes the need to solve complex equations, thereby eliminating the extremely high processing power and energy requirements necessary to remain competitive. But PoS throws up barriers in another way: instead of processing power, under proof-of-stake, fortune favours the rich. The higher the stake and the longer the staking duration, the more likely you are to receive rewards. For instance, Ethereum’s pending 2.0 upgrade requires an initial stake of 32 ETH (more than $60,000 as of 6 June 2022). Instead of miners, PoS validators are called stakers.

Even though anyone can theoretically be a miner or a staker, becoming either is a rarified game. Staking requirements might be exceedingly high, but mining rigs require costly ASIC computers and insane amounts of cheap energy.

In general, PoW is considered a more secure, more decentralised consensus method, while PoS allows for greater scalability and transactional throughput.

For a more detailed comparison, check out our article Proof of Work vs Proof of Stake: What’s the difference and for a deeper dive into bitcoin mining, check out our comprehensive explainer. Keep reading below as we tackle the question: Will bitcoin move to proof of stake?

The great Ethereum switcheroo

We will actually be given a glimpse into how it could all go down should bitcoin move to proof of stake. The $229bn ether (ETH) cryptocurrency, second in value only to bitcoin, is due to shift from PoW to PoS this year. The change is a long time coming, having first been scheduled for 2019. Ethereum’s founder, Vitalik Buterin, has been touting the technology since 2017, citing security, reduced risk of centralization, and energy efficiency as the leading motivations.

The so-called Merge has, at this point in time, attracted more than $24bn of interest from validators, who will take over from existing miners as stewards of the Ethereum network. However, the Merge, as well as being a large technical undertaking, comes with an existential risk to Ethereum: disgruntled miners.

These miners currently generate healthy sums from performing network consensus. When ETH reached its 2022 peak in April, shared daily rewards among all miners were as high as $47m, with top miners such as Ethermine standing to earn tens of millions. 

Screenshot showing Ethermine’s wealth over time – Source: etherscan.io
Ethermine’s wealth reached a high in December 2021 – Source: etherscan.io

With such wealth at stake, The Merge risks aggravating these miners. The last time a section of the Ethereum community felt duped, when the majority voted to roll back the network after a major hack of the DAO contract, it resulted in a hard fork of the entire network, culminating in the launch of Ethereum Classic as an alternative to Ethereum.

Herein lies the minefield that Ethereum needs to navigate. As an open-source protocol, Etherum’s blockchain can, and has, been duplicated with relative ease, and should a large contingent of the community get on board with a hard fork, this could dilute Ethereum’s market share.

The same fate could befall bitcoin, and the stakes are significantly higher. Bitcoin is the backbone of the global crypto mining industry, propped up by giant mining farms the size of small towns run by wealthy enterprises and even national governments (El Salvador).

A simple algorithmic change could jeopardise this whole industry, relegating millions of highly optimised yet obsolete ASIC servers to the trash heap. It is highly unlikely that the existing PoW stakeholders will roll over and accept that.

The environmental issue

Excessive energy consumption is the number one criticism levelled at the PoW mining method. While the net effect on carbon emissions is hotly contested, the empirical fact that bitcoin mining burns through roughly as much energy as the entire country of Sweden is an undeniable PR nightmare for the coin.

Switching to PoS would cut this eye-watering figure by up to 99.9%, if Ethereum’s estimates prove accurate. In addition to that, eliminating the need for giant farms of expensive ASICs would significantly reduce bitcoin’s electronic waste (e-waste) footprint, which Digiconomist estimates is equivalent to the amount of e-waste generated by The Netherlands’ IT sector.

If anything has the power to propel bitcoin towards PoS, these environmental concerns are surely the main contenders. One scenario could be a concerted global effort to outlaw the practice of crypto mining, thus forcing bitcoin’s hand. A growing number of countries are doing just that, with China being the latest high-profile member of the anti-mining global alliance. The West remains comparatively friendly to miners; In March 2022, the EU parliament shot down an amendment to the Markets in Crypto-assets (MiCA) proposal seeking to ban the practice, while the US welcomed crypto exiles from China after the recent ban.

However, even if, as is highly likely, bitcoin remains a PoW cryptocurrency for the foreseeable future, that is not to say that these environmental concerns cannot be alleviated. From hydropower to even volcanic power, tapping into alternative energy sources is commonplace in the bitcoin mining sector. Although specific numbers cannot be confirmed, research by the Harvard Business Review suggests anything between 39% and up to 73% of bitcoin energy consumption is carbon-neutral. In comparison, renewables comprise approximately 20% of US energy consumption.

If bitcoin manages to substantially reduce its carbon footprint over time, it could nix one of the primary arguments for switching consensus methods.

An argument against proof-of-stake

Adam O’Brien is the founder and chief executive officer of the Canada-based enterprise Bitcoin Well, a non-custodial platform providing secure ways to buy, sell, and use bitcoin. As co-chair of the Fintech Committee for the Canadian Blockchain Consortium, O’Brien cannot stress enough how disastrous PoS would be for bitcoin. “Moving to PoS would absolutely shatter the worth of bitcoin given that the underlying value (and monetary policy) of bitcoin relies on work being spent to maintain and have increasing value,” he told Currency.com. “This is a basic economics principle and one of the most important features of bitcoin.”

O'Brien’s contention is that PoS is anti-democratic in nature. He says: “Proof-of-Stake coins eliminate democracy and move the power to the ‘richest in the room’. Bitcoin is democratic, where a newcomer and a seasoned veteran have the same voice and the same power.” 

But what about all of that harmful energy usage? “There is no benefit to switching to proof-of-stake,” O’Brien reiterated. “The consequence of losing all sound monetary principles and democratic nature vastly outweigh the reduction in power consumption.

“Democratic money means equality and inclusivity, something proof-of-stake coins cannot offer due to the nature of how they work. To put another way, proof-of-work (bitcoin) offers equality, proof-of-stake gives power to a small, select group.” 

Will bitcoin switch to proof-of-stake?

The barriers to bitcoin adopting PoS go beyond technical and existential matters. While still open source, Ethereum has some semblance of a leadership structure. Through the Ethereum Foundation, whose board includes Ethereum figurehead and co-founder Vitalik Buterin, momentous network decisions, including the Merge, can be fielded and voted upon. Ethereum Foundation’s actual control over the network is minimal, but influential enough to enact some important changes.

Bitcoin lacks any substantial leadership structure or central party and the Bitcoin Foundation went insolvent in 2015. Fragmented non-profits such as the Australian Bitcoin Industry Body (ABIB) do exist, but their mission statements typically focus on jurisdiction-specific policies rather than a shared global vision (ABIB, for instance, wants to make bitcoin an Australian legal tender).

Theoretically, the community could vote on-chain in favour of a code change, but given the influence of miners in the community, this is extremely doubtful. O’Brien said: “We have a better chance of seeing Tupac perform in the flesh at Coachella next year.” 

Bitcoin maximalists would also argue that any semblance of a leadership structure would fly in the face of bitcoin’s decentralised philosophy. That may be true, but the community will eventually need to come together to decide on a gameplan once the last bitcoin is mined, though that is still 118 years down the line. Will bitcoin switch to proof-of-stake, either before or after that point? It seems doubtful, but in the world of digital assets, it never pays to say never. Hey, some even believe Tupac is still alive!

FAQs

For bitcoin to use proof-of-stake, 51% of the community would have to agree on the change. Since this community includes bitcoin miners whose profit derives from proof-of-work, it is very unlikely that bitcoin will ever use proof-of stake.

Proof-of-stake has become increasingly popular in recent years because of its significantly lower energy usage and greater potential for scalability. However, bitcoin will likely remain a proof-of-work coin for the foreseeable future.

Yes. Cardano, Solana and Algorand all use proof-of-stake. Ethereum is also due to switch over to proof-of-stake in 2022.

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