The president of the International Organization of Securities Commissions (IOSCO) Sustainable Finance says the EU should ban proof-of-work (PoW) mining. Erik Thedéen, who is also vice president of the European Securities and Markets Authority (ESMA) and head of the Swedish Financial Services Authority, said he is proposing a ban on PoW because PoW mining consumes energy that allegedly makes it difficult to meet the climate change goals of the Paris Agreement.
The amount of energy consumed by block reward mining operations has been a topic of discussion for years. The House Energy and Commerce Committee recently held a hearing on block reward mining, entitled "Cleaning Up Cryptocurrency: The Energy Impact of Blockchain.
The main problem government representatives have with mining is that they believe the amount of energy it consumes is unsustainable. When arguing about the environmental impact of block reward mining, they often cite statistics, such as the fact that block reward mining accounts for 0.6% of total global energy consumption and consumes more energy per year than Norway.
In order to reduce the energy consumption of block reward mining, Thedéen proposes to ban PoW mining and switch to proof-of-stake (PoS) mining.
"The solution is to ban proof of workload," Thedéen told the Financial Times, "Proof of equity has a much lower energy allocation."
Proof of workload and proof of interest
Proof-of-stake mining consumes less energy than proof-of-work mining because block creation is randomly generated between nodes, rather than a competition between nodes. Since block creation is random, there is no incentive to gain a competitive advantage by adding more computing power (hash arithmetic) to your holdings; the more computing power you have, the more power your mining device or mining farm uses.
"PoS is a class of distributed ledger consensus mechanism that works by quasi-randomly selecting transaction validators as it is proportional to the amount of cryptocurrency they have as pledges," said Bryan Daugherty, North American regional manager for the BSV Blockchain Association.
"PoW nodes generate blocks by receiving, broadcasting, batching transactions and solving difficult mathematical calculations – which can lead to high energy consumption – to gain the right to add transactions to the next block," he added.
While PoS mining is more energy efficient than PoW mining, it is not a direct replacement for PoW mining. Each consensus algorithm has unique advantages and disadvantages and achieves different goals for the network.
"PoS consensus may spread claims of being more energy efficient than PoW, but it does not achieve the goals, does not have the capacity, and does not support the goals sought when using blockchain technology. These goals can be summarized as a global solution for data management, a secure, stable, public, license-free, scalable and sustainable system. While PoS may boast sustainable levels of consumption, it completely lacks the security needed for a national public blockchain," Daugherty said.
"PoS consensus is reached through a vote of the largest 'stakeholders'. This governance model helps those with the most coin to control the 'truth' and disguise themselves as different entities, while, in effect, making the network vulnerable to Sybil attacks and questionable record keeping."
How to make proof-of-work mining more efficient
When measuring the energy efficiency of proof-of-work mining, analysts typically use BTC as a benchmark. However, using BTC as a standard has led researchers to draw conclusions that do not accurately encapsulate all PoW networks.
"There is a misconception that PoW consensus mechanisms are computationally unscalable and overly energy intensive. This is a salient point for blockchain researchers who use BTC as a PoW benchmark. New independent blockchain energy modeling confirms that block size and throughput have a significant impact on PoW efficiency. BTC block sizes are limited to 1MB and occur on average once every 10 minutes. Having a capped block size limits how many transactions can be included, which has a direct negative impact on its carbon footprint," Daugherty explained.
"In contrast, Bitcoin SV (BSV) is a PoW enterprise blockchain with unlimited blocks and utilities for securely sharing, transmitting, managing, immutably storing, monetizing, validating and leveraging data, enabling more than just "storing" valuable. As a result, the environmental impact of this technology, including its carbon footprint, decreases as utilization and networking increases," he added.
BSV has no block size limit. Each block can hold an unlimited amount of data. Although mining BSV blocks consumes roughly the same amount of energy as mining BTC blocks, more data/value is transferred in each block on BSV, which ultimately makes the BSV network more efficient than the BTC network. In fact, a report published in 202 by the Canadian accounting firm MNP concluded that BSV was the most efficient of the BTC, BCH and BSV groups and predicted that BSV would become even more efficient as usage increased.
Is it feasible to ban workload certification?
Although proof-of-stake mining is an energy-efficient alternative to proof-of-work mining, it achieves a different goal for blockchain networks. It introduces new attack vectors that can prevent enterprises from using the blockchain to search for secure global and sustainable distributed data ledgers.
Even if a country or union were to ban proof-of-work mining, the transition to proof-of-stake would not be as easy as flipping a switch.
"Switching from PoW to PoS requires establishing a pledge protocol and rules and engaging stakeholders. After implementing the PoS algorithm, it requires a hard fork. A validator needs to be set up and ready to run when the fork occurs. It can take many years for a mature blockchain to switch from PoW to PoS," Daugherty said.
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