Ethereum has moved to proof of stake. Why can’t Bitcoin?

Bitcoin mining, the computationally intensive process by which bitcoin is created and accounted for, has become a global concern. After China banned bitcoin mining in mid-2021, miners are looking for other places in the world where energy is cheap, but not always clean. In places like Kazakhstan, miners put pressure on the power grid, which relies heavily on carbon-intensive coal-fired power stations, causing localized blackouts and contributing to civil unrest. In upstate New York, where miners have taken over shuttered factories and empty warehouses, locals complain of rising energy bills and the high-frequency whine of snarls. who are fans of the data center—and concerned about the mining environment. The US currently hosts 38% of all bitcoin mining operations.

One Bitcoin transaction uses the same amount of energy as a US household does in about a month. But does it have to be that way? The Bitcoin community has historically been extremely resistant to change, but pressure from regulators and environmentalists fed up with Bitcoin’s massive carbon footprint may force them to rethink that stance.

Various countries, including Kazakhstan, Iran, and Singapore have also set limits on crypto mining. In April 2023, the European Parliament will pass a landmark crypto bill called Markets in Crypto Assets (MiCA), which mandates environmental disclosure from crypto firms. The law is expected to be implemented in 2024.

That may be just the beginning of the EU: the European Central Bank has previously stated that it cannot imagine a world where governments will ban gasoline-powered vehicles in favor of electric vehicles, but will not act on Bitcoin that continues to CO2 pumping. “Some members of the European Parliament are already wondering why Bitcoin is not following Ethereum,” Alex de Vries, the data scientist behind Digiconomist, a website that tracks cryptocurrency energy use, told MIT Technology Review.

Efforts to crack down on Bitcoin waste are also gaining steam in the US. In November, New York became the first state to implement a temporary ban on new cryptocurrency mining permits at fossil fuel plants. The new law also requires New York to study the impact of crypto mining on the state’s efforts to reduce its greenhouse gas emissions.

So what does it take to make a switch?

Proof of work vs. proof of stake

Cryptocurrencies do not have a central custodian, like a bank, to manage their public ledgers—the shared digital record of every transaction on the blockchain. Instead, they rely on consensus mechanisms to agree on updates. In proof of work, the method relied on in Bitcoin, a global network of computers—known as “miners”—spends electricity trying to win a kind of lottery. Whoever wins gets to add the next block and collect new coins in the process. The chance of winning is directly proportional to how many calculations a miner makes. As a result, many server farms have emerged around the world dedicated solely to winning the bitcoin lottery.

Proof of stake, the method currently used by Ethereum, eliminates a lot of energy consumption. Instead of miners, proof of stake systems use multiple “validators.” To become a validator, you must deposit or “put” a set amount of coins—32 ether, in the case of Ethereum. Staking gives validators the opportunity to check new blocks of transactions and add them to the blockchain so they can earn rewards on top of their staked coins. The more coins you stake, the better your chances of being selected to add the next block of chain transactions.

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