Why Bitcoin’s Proof of Work Might Just Be the Future, After All

In recent years, many blockchains have transitioned to or initiated with the proof of stake consensus mechanism, driven by factors like environmental concerns, energy efficiency, and overall system enhancements. Bitcoin is one of the few major cryptocurrencies still employing proof of work. While some view this as outdated, proof of work might not be as disadvantageous as commonly perceived. In fact, there are compelling reasons to believe it's both secure and environmentally beneficial in the long run.

In 2008, Bitcoin emerged as the first cryptocurrency, marking the debut of blockchain technology and igniting an industry now worth trillions. It introduced the world to a decentralized, trustless, peer-to-peer electronic cash system – a groundbreaking innovation. At the heart of Bitcoin's design is its unique Nakamoto consensus mechanism. Here, validators, known as miners, compete to process the next set of transactions on the blockchain. Each miner expends electrical and computational resources to solve a cryptographic puzzle. The first to succeed earns the privilege to forge the subsequent Bitcoin block, reaping transaction fees and a bonus block reward.

Proof of work is commonly criticized for several reasons, namely its gross and inefficient use of electricity. By some estimates, it uses almost as much electricity as the entire country of the Netherlands or ⅓ of Australia’s consumption. This has been a primary argument against some companies adopting Bitcoin, especially with the rise in the ESG movement over the past few years. Proof of work is commonly seen as a legacy blockchain consensus mechanism, only utilized for historical reasons and because of Bitcoin’s difficulty in upgrading. 

Though these arguments have been used for years by mainstream media and critics of Nakamoto consensus, Bitcoiners stand firm in the belief that proof of work is a feature, not a bug. One major part of their argument is that proof of work is much more decentralized and trustless than proof of stake. For example, for someone to get access to the Ethereum ecosystem, they have no choice but to buy Ethereum from another person or entity, which could be prohibitive. On the other hand, Bitcoin can be acquired by using mining hardware and one of the most common currencies on Earth, electricity, and simply buying the digital asset. Anyone with an internet connection can mine Bitcoin, and though a miner may be expensive, it costs less than the 32 ETH to run an Ethereum validator.

Another argument centers around the centralization of mining, as it has led to the centralization and conglomeration of mining pools, where users group their computing power and share the network rewards. Currently, two mining pools could collude to take over the Bitcoin network. Though this seems threatening, Ethereum faces a similar issue with their liquid staking derivates platforms like Lido, which currently controls 32% of the total Ethereum staked. Since only ⅓ of Ethereum is required to reorganize the chain, granted at the cost of losing that ⅓ ETH, Ethereum is in a similarly precarious situation.

Though Bitcoin mining becomes centered around large-scale operations with warehouses full of miners, this is the economically most efficient approach as decided by the free market. Part of this optimization is using the cheapest energy available - clean energy. Indeed, some estimates place the amount of Bitcoin miners using green energy at higher than 50%, far greater than most industries. Bitcoin may use 0.2% of the world’s total energy capacity, but this number is nominal compared to the value it generates and the energy expenditure of our current financial system, according to Bitcoiners.

Proof of work is certainly not without its problems. Bitcoin’s block time is 10 minutes, partly due to its reliance on probabilistic finality and the rule of the longest chain being the canonical blockchain. On the other hand, proof-of-stake blockchains can achieve near-instant transaction finality and are much better positioned to be an internet currency. Yes, solutions like Bitcoin’s Lightning Network allow for free and near-instant transactions, but they rely on user adoption and do not support the long-term transaction volume of the Bitcoin network.

Even though proof of work has been condemned as an inefficient and polluting byproduct of Bitcoin’s legacy, the truth is much more nuanced. While it uses a lot of electricity, it provides a floor for the value of Bitcoin and is incentivized to be as cheap and clean as possible. Additionally, it gives anyone with internet access the capability to contribute to the network as a miner and earn BTC in the process without having first to buy some from someone else. Proof of work will likely never leave Bitcoin, so we might as well break the narrative about it being such a bad thing.

By Lincoln Murr

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