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Proof of Work is outdated — It’s time to switch our attention to Proof of Stake

Proof of Work is outdated — It’s time to switch our attention to Proof of Stake

Following the recent rapid growth and adoption of the Cryptocurrency industry into modern society, there has naturally been an increased interest in more oversight and regulation into how sustainable Cryptocurrencies can be. 

With Global sustainability and energy efficiency at the forefront of these issues, the viability of Cryptocurrencies is now open for debate, with interest firmly focused on the sustainability of blockchains, most notably Proof of Work variants. 

In the Cryptocurrency industry, there are two ways to mint and generate tokens for a blockchain; Proof of Work (POW) and Proof of Stake (POS) networks. They're similar due to their composability across the industry but differ greatly in their energy consumption and long-term viability.

Proof of Work

A Proof of Work blockchain uses hardware and specialised mining equipment to solve cryptographic “puzzles” to complete and mine new blocks. When the block is completed, miners are rewarded with newly minted tokens. These tokens can then be sold to exchanges or held.

Proof of Stake

A Proof of Stake network uses a consensus mechanism where users stake their coins to validate transactions and operate nodes. Staking produces rewards for stakers based on the number of coins they contribute to the staking platform. On POS blockchains, all tokens are pre-minted and then distributed.

As it stands, 4 out of the top 10 leading assets use Proof of Work; Bitcoin, Ethereum, Dogecoin and Litecoin. Due to their long-standing popularity in the industry, they have maintained their top spots, although have all experienced their fair share of criticism based on their means of production.

The issues plaguing POW assets

The main issues facing Proof of Work blockchains are the competitive nature of the mining space, excessive energy usage and unnecessary waste. For miners, more computational power from more hardware and increased energy usage increases their rewards, meaning they’re incentivised to seek cheaper energy sources in more affordable locations.

This naturally leads to a more centralized space, which is naturally counterproductive to the ethos of Cryptocurrencies. Miners tend to gravitate towards areas where energy is cheaper, unintentionally creating mining “hubs” that can control and influence operations, asset prices and essential metrics associated with mining such as hash rates. The dominance of these Bitcoin mining hubs and little incentive to switch from cheaper energy sources to more expensive renewable options indicates that quick solutions to environmental concerns aren't available yet.

Being the most globally popular and well-known asset, Bitcoin naturally faces the most intense scrutiny and oversight on the long-term sustainability of mining operations. It’s facing heavy opposition from governments, institutions and regulatory committees, with prominent issues including the usage of unsustainable energy sources such as coal, its contribution to climate change and how much energy is wasted through mining.

The global energy usage of mining Bitcoin is said to be comparable to that of many developed countries, and rivals emissions from major fossil-fuel users and producers such as airlines and oil-services firms. Bitcoin “Maxis” and supporters have outlined and somewhat addressed the concerns, arguing that the energy usage is no worse than the carbon footprint of cars, power plants and factories.

However, it doesn’t exclude the fact that Proof of Work remains an outdated way of operating a blockchain. It’s considerably slower and uses more energy because of larger block sizes, whilst also being a more centralized form of distribution and production. 

Bitcoin and Ethereum are both POW and remain the industry's leading assets due to their capabilities and their functions as tokens. However, the industry is slowly moving away from Proof of Work, with Ethereum making the gradual transition to POS in the coming years. 

The rise of the DeFi space has also prompted a drastic shift in attention towards staking platforms that offer rewards and incentives for using a cleaner, more sustainable POS blockchain like Cosmos and assets built on top of it like e-Money and their range of assets.

Institutional interest

Leading institutions and clean energy companies have also shown considerable interest in Bitcoin recently, further fuelling the speculation about its long-term viability as an asset in a changing world. Elon Musk and Tesla became recent investors in Bitcoin and accepted the asset as payment for their vehicles. However, due to the recent concerns about its energy usage, they suspended payments. Musk said that Tesla will explore more sustainable assets that use <1% of Bitcoins energy usage, which further puts the onus on POS blockchains and marks a point for the industry where attention is fixed solely on energy efficiency.

China’s recent clampdown on Bitcoin mining in Chinese territories has now prompted Chinese mining consortiums to move their operations across borders to areas with less regulation. The removal of Chinese miners from native soil caused a drop in the hash rate of Bitcoin mining and a decline in price due to miners selling their pooled assets.

Now, countries such as El Salvador have recently revealed that they’re planning on mining Bitcoin using 100% renewable energy from volcanoes. Engineers in El Salvador successfully dug a geothermal well that will be utilized for Bitcoin mining. It's a promising sign for the future of mining and POW blockchains, however, concerns still exist regarding their future use and viability, with common discourse still dictating that they remain archaic and outdated.

A new approach

With Global sustainability initiatives being introduced and adopted at a growing rate, assets that don’t adopt more modern approaches face increased oversight from regulations and unwanted attention similar to Bitcoin. The industry's gradual transition to a POS dominant space will slowly address these concerns over time and demonstrate that Cryptocurrencies can be clean and sustainable.

By switching our attention to a POS dominant industry, we can highlight the full capability of Cryptocurrencies and overlook the regulatory issues that currently plague assets like Stablecoins and POW assets.

It’s gotten an adverse reputation recently, and it’s for the wrong reasons. Of course, whilst Bitcoin and Ethereum lead the way for the industry, energy usage will be the leading narrative behind the adoption of Cryptocurrencies in this current energy-focused political climate.

However, as the narrative changes and the energy concerns are addressed by those driving the industry towards success, Proof Of Stake blockchains can be our answer to reversing this negative outlook and shining the spotlight on what the industry can achieve. 

Proof of Stake blockchains like Cosmos are now starting to emerge as strong competitors to existing market leaders, with their capabilities bringing considerable advantages over outdated POW models. POS provides instant finality on transactions, global infrastructure and most importantly, negligible energy costs and concerns regarding its energy usage. 

e-Money provides a dynamic solution 

The spotlight also needs to be shone on Bitcoins use as a store of value and its potential as a currency. Whilst Bitcoin fulfils certain aspects of what money should provide, it currently lacks the support and infrastructure necessary to achieve global acceptance as a payment network.

Now, assets such as Stablecoins are starting to fit the bill and provide users with “safe-haven” assets whilst having exposure in the crypto space. Stablecoins are backed by an external asset such as dollar reserves and are pegged to the price of £1/$1. However, they have faced criticism in today’s climate due to increasing interest rates, over-collateralization of assets and uncertainty surrounding their long-term viability.

To combat this, Stablecoin providers like e-Money are looking to disrupt the Stablecoin market through its range of interest-bearing currency-backed stablecoins reflecting various world currencies. e-Money currently supports the eEUR, the eCHF, and tokens backed by Scandinavian currencies (eNOK, eDKK, and eSEK) and  each token backed by a reserve of assets denominated in its underlying currency. A totally fair and transparent stablecoin, audited by Ernst & Young once per quarter, e-Money plans to become a local and global currency simultaneously. e-Money is not looking to replace fiat currency fully, but to act as an upgrade that will greatly facilitate transactions. Connected to the Cosmos network, e-Money will handle thousands of transactions per second and provide immediate finality to users, an essential aspect for a widely adopted transfer of value asset. 

e-Money stablecoins utilise an interoperable POS consensus, meaning the footprint of the assets remains negligible. Pioneering a new form of sustainable Stablecoin that can fulfil current market needs and tackle the growing concerns of environmental damage and energy wastage is much needed for the crypto space. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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