Proof of work, or proof of waste?by@andrew_31949
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Proof of work, or proof of waste?

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Bitcoin and the energy usage dilemma

If you’re moderately well versed in the blockchain ecosystem, then you would have by now come across the energy consumption debate that is taking place in relation to Bitcoin Mining. Yes, Bitcoin Mining requires a lot of energy, and not a modest amount either. Mining (under the current protocol of Bitcoin’s proof of work algorithm) is deliberately consumptive of energy.


In fact, according to a recent Cointelegraph article, it was estimated that the Bitcoin network uses 0.14% of the global energy consumption and more power than several developing nations, as displayed in the illustration above.

A tale of two consumers

Now, bare in mind, nations need to heat and light households, operate machinery, power manufacturing plants, refrigerate food for millions of people, etc. Bitcoin, on the other hand, has to verify 5 transactions per second and add new blocks to the blockchain every 10 minutes or so, hardly major physical and computational graft, so, it does beg the question, is proof of work really the most efficient method of mining new coins and verifying transactions? Or, can we do better? Is it right that we continue inefficiently burning nation-state equivalent sums of electricity, for what is ultimately, an egg hunt that doesn’t ultimately directly benefit the network?


This factor, is perhaps the single point of disagreement that I have with most long-term Bitcoin community members. I can’t recall a time that I’ve ever heard (or read) a word from Andreas Antonopoulos that I’ve disagreed with, apart from in relation to this matter. Even he admits that there is only room on this globe for 1 proof of work based network. The revelation in that statement being that multiple proof of work algorithms could ultimately cause some kind of energy crisis?


Why does Mining consume so much energy?

Well, why do we need miners is the first important question, and the answer is two-fold. To produce new Bitcoins and to secure the network.

In order to compete for a block, the mining community need to solve a puzzle that has been encrypted. I could go into difficulty adjustment levels, leading zero’s and SHA256 to explain how task is executed, but all you need to know at this stage is that solving this puzzle serves no purpose for the Bitcoin network other than to create a lottery system that consumes a lot of energy for the participants.


The use of energy is deliberately high, and incrementally adjustable so as enforce an unavoidable cost on all who participate. The ‘Nonce’ (solution to the puzzle) is just a way to equalise the possibility of success in a pool of miners. Because it’s random (and encrypted), 2 miners with the same equipment have equal likelihood of solving the puzzle by the finding the nonce, and thus making away with the booty (to use a pirate analogy). The problem is, the number of miners currently simultaneously taking part in the search for this nonce means that the difficulty level is very high and ever increasing as the price of Bitcoin continues to skyrocket as more people get interested in mining.

Hence we have an increasing number of miners solving an increasingly difficult puzzle to confirm a comparative handful of transactions. The result is a considerable waste. The power being consumed by miners to participate in Bitcoin mining is becoming undeniably substantial, especially when considered cumulatively.

Is it needed or is just nonce-sense?

The problem does not lie with the demand for power, if in fact the Bitcoin network actually required it, there would be no debate from the community. Believe me, if it cost 100 times what it does now in order to successfully support and maintain a decentralised, secure, independent, publicly owned and incorruptible network for currency and global transactions that gives the masses an alternative to the banking system, then by god, I’d be all for it — the cause is more than honourable enough, and there is no questioning the value of Bitcoin. But ultimately it’s power that is literally being utilised for no other reason but to impose an artificial expense.

Bitcoin miners being forced to ‘prove their work’ by completing wholly superfluous calculations in order to win the mining lottery.

The reason it’s needed

The justification that is largely reiterated by our dear Bitcoin community is that it was designed to be this way to attach a cost to mining, lest the network become spammed or insecure. If it was too cheap and easy to mine people would be getting involved in the network and risk approving bad transactions, or demanding sky-high fees as there is no risk associated to your block being rejected. It is a way to force miner scarcity and participant quality, I guess? Indeed, this is the argument has been eloquently posited and is largely reiterated by most in support of proof of work. But is proof of work the only, or even the best method for the support of the network and the creation of new coins?

Here are 3 of the main problems I see with the current proof of work setup:

1. The Competitive disadvantage and inevitability of monopoly

Where financial incentives and personal interests collide, you get divisions. These are inevitable in any functioning ecosystem and Bitcoin should certainly not be de-incentivised. However, what we are increasingly witnessing the emergence of a new political class within the Bitcoin network. It seems that miners, for purely economic reasons are increasingly brining their own agendas to the forefront. This has contributed massively to the new trend of hard-forking for political differences. The forking of Bitcoin is almost exclusively a result of the disagreements about mining difficulties and compensations using the proof of work algorithm.

Miners have invested small fortunes in ASIC processor powered ‘mining farms’ that are specialised for mining Bitcoin, and not only has this made it almost impossible for new entrants to enter the Bitcoin mining pool, it has also resulted in Bitcoin being forked to form alternative revenue streams for these groups.

Segwit was opposed by miners because of the reduced mining reward, (the Lightning Network will likely cause further tumult if adopted en masse in the Bitcoin network, as it takes transacting off chain and will reduce greatly the demand for transaction confirmations and new blocks). Other currencies since have attracted miners by increasing the block sizes but as a consequence, may have inadvertently decreased competition by making it increasingly harder for independent miners to compete with the larger mining farms. This centralisation of what underpins the security of Bitcoin is increasingly being considered as a concern for those attracted to Bitcoin’s decentralisation.

2. Barrier to entry and Economic Disadvantage for poorer communities

Whether or not we like to admit it, the entire mining industry is economically unfair. First of all there is the basic fact that Bitcoin’s price is not linked to the petrodollar (Thank god!), but this ultimately means that if you live in a region where electricity is not subsidised, you are at a considerable economic disadvantage in comparison to mining rigs set up in subsidised nations. In addition to this, the start up cost of attaining ASIC processors and cooling equipment has left most developing nations high and dry. In fact, no more than 15 mining pools pretty much have oligopoly over the entire bitcoin mining infrastructure. That is shockingly close to being centralised and is hardly the egalitarian utopia that was envisioned in Satoshi’s whitepaper.

Hashrate Distribution_A pie chart showing the hashrate distribution between the major bitcoin mining pools -

3. Links Bitcoin to the Fiat economy

Finally, and most frequently overlooked, is that enforcing processing power as a monetary commitment intrinsically links Bitcoin to FIAT currency, which is ultimately counter-intuitive. Think about it logically: we are enforcing commitment of FIAT in order to mine Bitcoin? Why? Bitcoin is an attempt to create a new ecosystem. Immutable digital cash, so why are requiring a FIAT transaction to take place to secure our network. Yes there should be a currency expense, but FIAT is not the only form of currency.   What do you think of proof of work? Are you in support, or do you think there might be room for an alternative? I obviously could be way off on this one, so I’m definitely open to all community feedback. Is there an alternative or is this an unavoidable necessity for the long term security of the Bitcoin Network?

I am in the process of drafting 2 alternative concepts for coin creation and network security called ‘proof of time’ and ‘community proofing’. These aren’t ready, and might not even be feasible, but it will be fun seeing how they’re received. Comments below please.


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