Towards an eco-friendly blockchain
Twelve years after it’s inception, the decentralized heart of Bitcoin still beats on the machine of each and every miner across the globe. Regardless of democratizing the control of transactions, this aspect of cryptocurrencies has been perceived as a double-edged sword in pop culture. The reason? Mining rewards are based on raw computational power, something that comes with a toll on nature — let’s shortly explain why.
In layman’s terms, mining refers to the process of verifying a block of transactions whereas miners are the individuals who have devoted their hardware to this cause. A miner may thus be seen as the third-party who signs the legitimate transfer of value between a pair of wallets by trying to perform some dull but very expensive guesswork. On the basis of decentralized consensus, multiple miners on the network validate a block of transactions using a “one-CPU-one-vote” principle and the vote of the majority is eventually recorded in the history as the state of the network at a time. This process essentially eliminates the common double-spending problem that would have otherwise hindered such online transactions in lack of exchange of physical goods. In order to incentivize one to become a miner, the system allocates a minimal portion of the transferred value of every transaction to be paid by the sender to the miners in the form of fees. This scheme is referred to as Proof-of-Work (PoW) and it is still the working principle behind the majority of the 8,000 cryptocurrencies out there, including Bitcoin and Ethereum. However, it is so power-hungry that it collectively consumes more energy than seven nuclear power plants or the whole of Switzerland.
To mitigate the need for excessive computational power, an alternative approach to the task has been proposed. Instead of actually having to mathematically prove that a block of transactions is legit, a third party — a validator — may guarantee its legitimacy straight away by putting their precious capital at stake when signing; a practice referred to as Proof-of-Stake (PoS), which is one of the key components of the second version of the Ethereum chain that launched on December 1st. This capital may serve as a security deposit which can (and will) be taken away, should the validator deliberately attempt to misbehave. But most importantly, this simple concept requires no computational muscle as the size of the stake should speak the truth given that the cumulative sum of the transactions to be validated is much lower than the locked deposit, rendering it unprofitable to cheat. In fact, an Ethereum 2.0 validator may even run the necessary software on a low-end computer, such as a Raspberry Pi, unlike the ridiculously hungry hardware for profitable contemporary mining.
For one to become an independent Ethereum validator for the transactions of others, exactly 32 ETH need to be locked. Funnily enough, this has been considered as the magical number in crypto folklore since PoS was announced to refer to the “minimum” size of one’s ETH stack in order to eventually “make it”, should Ethereum’s price shoot for the moon. Since the real-world value of 32 ETH at the moment (approx. 19,200$) might be a bit disheartening to newcomers, one may also stake an arbitrarily smaller capital via staking pools which in turn run their own validator nodes based on the collective capital and reward all the participants proportionally to their contribution.
As of now, the roadmap for the deployment of the final version of Ethereum 2.0 to the Mainnet spans a two year horizon. However, it would be realistic to expect that mining will soon look like the short-lived zoomer hype that fueled the adoption of blockchain as the second pillar of Industry 4.0. Because, just like everything in tech, it must evolve to adapt.