The enormous energy consumption of the current proof-of-work consensus system used by both Bitcoin and Ethereum is not anticipated to go undetected given the global energy crisis. Why is Proof of Work so energy consuming?
Proof of work, a consensus protocol, has been employed by Bitcoin since its inception in January 2009 to validate transactions on its network. The proof-of-work protocol consumes a lot of energy because it relies on numerous servers to maintain the network operational. The Bitcoin network offers the capability to only complete 6 transactions per second in exchange for consuming a significant amount of electricity and server resources.
Even before accounting for the resources used to produce the servers, the University of Cambridge estimates that Bitcoin is using about 0.5 percent of the world's total electrical supply, which is more than the Netherlands. Consuming 0.5% of the available electricity won't go unnoticed in a society when it is undoubtedly a rare resource.
The fact that miners can afford to spend more on electricity and mining equipment while still remaining lucrative has led to a rise in Bitcoin's electricity consumption, which is a problem. Future price increases in Bitcoin are anticipated to be followed by increases in electricity use, which will essentially make the situation worse.
The hash rate, or overall mining capacity for Bitcoin, is frequently concentrated in a small number of nations. Around 71 percent of the hash rate was produced in China prior to the country's crackdown on cryptocurrencies in May 2021. The total Bitcoin hash rate roughly decreased by half in the month following the crackdown before nearly doubling again after six months.
The fact that miners can afford to spend more on electricity and mining equipment while still remaining lucrative has led to a rise in Bitcoin's electricity consumption, which is a problem. Future price increases in Bitcoin are anticipated to be followed by increases in electricity use, which will essentially make the situation worse.
The hash rate, or overall mining capacity for Bitcoin, is frequently concentrated in a small number of nations. Around 71 percent of the hash rate was produced in China prior to the country's crackdown on cryptocurrencies in May 2021. The total Bitcoin hash rate roughly decreased by half in the month following the crackdown before nearly doubling again after six months.
Ethereum, the second-largest cryptocurrency, has been preparing for the switch from proof of work to proof of stake for years through an update known as ETH 2.0. When the switch is complete, which is anticipated to happen this year, Ethereum will use 99.95% less energy overall. The shift of Ethereum shows that it is not only possible to establish new cryptocurrencies based on proof of stake, but also to do so while operating under a proof of work model. Ethereum's energy consumption will be dramatically reduced, and ETH 2.0 will greatly increase Ethereum's scalability in terms of attainable transactional output.
Proof of work is a burden on the crypto market at a time when the sustainability debate is urgently needed and we are also dealing with the worst energy crisis in decades. Individual investors, institutions, and developers are likely to think twice before devoting time and resources to Bitcoin or other proof-of-work cryptocurrencies in the future as the sustainability issue is anticipated to intensify. In our opinion, the proof-of-work consensus mechanism is simply too weak to function effectively during an energy crisis that is seasoned with a constantly shifting regulatory landscape and the rising need to be sustainable.
