The existence of cryptocurrency depends on a complex technology that you define at premise The birth of the digital currency, and hence its correct performance. This technology is the blockchain: a ledger for collecting information and managing transactions.
To make this digital book safe and reliable A validation mechanism must be implemented to solve the main problem of cryptocurrencies: double spending. Developers adopt several systems including Proof of Stake and Proof of Work, Proof of Place and Time consensus mechanisms, and many more.
The most common consensus mechanisms are Proof of Stake (PoS) and Proof of Work (PoW). The Proof of Work is the oldest and the one that generates the most environmental impacts for its energy consumption, while the POS was born 4 years later to propose the most optimal solution – in active terms.
In fact, Proof of Stake protocol requires less electricity to operate but Speaking of impacts, it creates new scenarios that unfortunately do not fall within the concept of sustainability. So what are the pros and cons of PoS? And what are the ways that cannot be considered sustainable?
Proof of Stake and Sustainability: The Birth of the Protocol
The PoS protocol was born 10 years ago as a new alternative to the PoW consensus mechanism: The concept of transaction validation undergoes a transformation and is no longer a solution to a complex computation but adopts a new procedure.
Partial solution to a weak proof of work Because the energy consumption required for Mining Of these cryptocurrencies really demand a lot, and it increases exponentially with the increase in the value of the digital currency.
Ideally, if it is 100% – or a good portion – of Mining Made in a “clean” way, that is, using renewable energy sources and respecting strict social and environmental rules, there will not be much noise on the web. Experts from the scientific community explain that due to the way it is prepared, this protocol is not sustainable.
Can proof of stake be defined as socio-ecologically sustainable?
Before going into detail in the protocol, it is essential to have a clear idea of the concept of sustainability. This term is so broad and complex that there is no universally recognized definition. However, the basic concept in this article will be as follows:
Based on the 17 Sustainable Development Goals set by the United Nations, It can be concluded that “sustainability” is supported by three main pillars:
- The ecological substrate that affects the protection of the ecosystem,
- social pillar, paying particular attention to human respect,
- The economic pillar that aims to grow and improve the quality of life while respecting the environment and society.
Proof of Stake and Sustainability: How the Protocol Works
To understand how the protocol works we can refer to the explanation provided before cryprogeek:
“In a PoS network, participation is determined by the ownership of the coins. So anyone who wants to be selected to add blocks to the PoS blockchain should have a certain amount of that cryptocurrency.”
With mask This means having to block a certain amount of cryptocurrency in order to get a reward. This was presented in a proof-of-work protocol to the cryptocurrency miner who guessed the complex mathematical calculation.
The ability to choose to produce the next block and get the reward, In the case of Proof of Stake, it is credited at random, but those who are most likely to get it are people who are involved in a large amount of cryptocurrency.
There are also other factors that are taken into account for not favoring the rich, which makes them richer, but unfortunately this is the most dependent. This short video from Pointbite – Technology & Economics explains why the Proof of Stake can be considered a failure to create a “green” cryptocurrency.
Proof of Stake and Sustainability: The Positives
The advantage is that in Proof of Stake there is no need for processing Miningand then You don’t need the computational power and super computer speed of Proof of Work. So from an energy point of view it is more efficient.
Going beyond energy consumption, we know it When we talk about environmental impact, we are referring to the components needed to power supercomputers and all specialized equipment Like those dealing with cooling. All this will be eliminated.
Another benefit of Proof of Stake is the speed of the transaction: In fact with this protocol many blocks per minute can be validated and this would ensure a high rotational speed And exchanges that will not be possible with Proof of Work.
But if we stop to think about the fact that the people who receive the rewards are the same people who monopolize the market and who own a very large percentage of the cryptocurrency in circulation, will we not get out of the innovative concept of a decentralized market?
Proof of Stake and Sustainability: Downsides
Basically it is the person who enters Period More and more cryptocurrencies will often be chosen as a candidate to validate a new transaction. If someone tries to hack them, the blocked amount of cryptocurrency will be lost, ensuring that people pay close attention to their movements.
On the environmental level, this mechanism solves the problem of energy consumption because there is no competition between miners, but There are new numbers, auditorswho don’t have to use supercomputers to undermine transactions, validate them, and of course get a reward.
However, in terms of security, it presents some complications because this system can be hacked and manipulated more easily. And if we think that one person can own more than 50% of the total tokens, what will happen?
This is known as a “51% attack” and occurs when a person or group controls more than half of the computing power or verification authority of a crypto network. Majority control of the cryptocurrency blockchain allows that group or person to create and process transactions.
Proof of Stake: Economic Sustainability
Many economists argue that blocking an amount of cryptocurrency is an advantage because it allows you to remove part of the global supply from the market, thereby increasing the value of the currency. This would reduce the risk of being attacked by 51%.
But why should the value of a virtual currency matter if it is monopolized by so few people? The same ones that the rest of society entrusts them with for validation?
Back to Sustainability Pillars, Proof of Stake It is not economically sustainable because it takes a portion of the coins from circulation and collects them. In fact, if you accumulate a bunch of currencies, it is not good for the market.
Also, just thinking that having a huge amount of cryptocurrency and blocking it allows you to receive great rewards is strange. According to the law of diminishing marginal returns:
“Every additional unit of a given factor of production, and all other factors remaining the same, produces progressively lower returns.”
This mechanism only works in conditions of extreme security and if the owned tokens are returned to trading. Moreover, there should be no competition between the big holders. Conditions far from reality.
Proof of Stake: Social Sustainability
According to the Social Sustainability Pillar, cryptocurrency should respect society in accordance with the principles of fairness and free access. In the absence of economic sustainability, social sustainability collapses as a result.
If centralization of financial resources is favored, equity will no longer be guaranteed. Free access is still a plus, but to think that a small investor can compete with the big giants that will dominate the market is crazy.
If the person with the most capital receives more rewards, the metrics will tilt completely towards those who own the most cryptocurrencies. Compared to Proof of Work, this protocol is more restrictive and again follows the dynamics of the intermediaries that we see every day as banks.
Proof of Stake and Sustainability: Cryptocurrency or Investment?
Here a legitimate doubt arises: the developers choose the Proof of Stake protocol Are they trying to create a digital currency, thus respecting the basic principles of cryptocurrency, or an investment scenario?
The strategies adopted by the Proof of Stake protocol are: blocking a portion of the capital, increasing transaction taxes and increasing the market value of each token. Practically fertile ground for those who want to invest and make a profit.
If the objective is to prove the stake If it is 100% cryptocurrency, it should facilitate trading and earning with the same currency and not with a ban. The ideal cryptocurrency should be free and not get in the way.
If proof of stake reduces electricity consumption, at the same time it wastes huge amounts of money to keep it in place.
The Proof of Stake protocol cannot be sold as sustainable because it is not one of the primary criteria that should be defined as such. Developers who adopt this system to bring cryptocurrency to market Green color They are creating new scenarios for resource centralization.
Copywriter, born 1992.
exit fromUniversity of TurinI am one of those naturalists and environmental biologists who is always looking for something to discover. Biologically speaking, man is a very interesting species that lives mostly near a forest made up of buildings, cafes, factories and various kinds of artifacts, solving problems related to the development of modern society: work, family, hobbies.
Specializing in risk communication, my focus is on imparting solutions on how best to improve and manage our daily lives through the selection of social inclusion, constructive and sustainable options.