What Is The Next Big Thing in Blockchain?

Cryptocurrencies like Bitcoin use enormous amounts of energy to secure their network. But why are cryptocurrencies so power-hungry and more importantly what are the alternatives? Much of the hardware used to perform the calculations uses highly specialized computers running Linux collaboratively in “farms” although there are many crypto “mining” apps which are Windows based or uses Windows program development even if their eventual targets are not Windows-based machines.

Why is proof-of-work a problem for Bitcoin?

Mining new coins take a lot of computing power because of the proof-of-work algorithm. The concept was first presented in 1993 to combat spam emails and was formally called “proof-of-work” in 1997.

Nevertheless, the technique went primarily unused until Satoshi Nakamoto developed Bitcoin in 2009. He discovered that this mechanism could be used to reach harmony between many nodes on a network, and he utilized it as a way to secure the Bitcoin blockchain. Yet the proof-of-work algorithm works by having all nodes solve a cryptographic puzzle. This puzzle is solved by miners (the metaphor is drawn from the concept of them extracting their fortunes from hard physical work) and the first one to find the solution receives the ‘miner reward’. This has directed to a situation where individuals are building bigger and larger mining farms in order to share the effort in a “many hands make light work” team effort. The advent of lower cost hardware with a more affordable “bang to buck” ratio – more CPU power for a given financial outlay – coupled with a very broad expansion in the availability of single board mass-produced hardware such as the Raspberry Pi and RISC-powered boards has meant these kinds of mass-computing networks are achievable at a modest level of investment.

Bitcoin miners alone use almost 54TWh of electricity, enough to power 5 million households in the US or even power the whole country of New Zealand

Will blockchain contribute to global warming?

Maybe. Blockchain calculations are shaping up to become a power-suck of worrying proportions. Even accounting for the lower power consumption of modern hardware the sheer computational effort involved and a trend toward coupling dozens, hundreds or even thousands of machines together to obtain the financial rewards which, due to its nature is increasingly hard to obtain and, in the case of Blockchain, harder means more CPU cycles and more CPU directly translates into a greater demand for electricity.

According to Digiconomist, Bitcoin miners alone use almost 54TWh of electricity, enough to power 5 million households in the US or even power the whole country of New Zealand. But it does not halt there. 

It’s currently a simple equation: proof-of-work gives more bounties and thus greater rewards, to people with better and more plentiful equipment. The higher your hash rate (the number of calculations you can perform on the data), the higher the chance that you’ll get to create the next block and obtain the mining reward. To increase the chances even further, miners have come together in what’s called “mining pools”. With mining pools, they combine their hashing power and distribute the reward evenly across everyone in the pool.

Proof-of-work is causing miners to use massive amounts of energy and it encourages the use of mining pools which makes the blockchain more centralized as opposed to decentralized. So, to solve these issues, we have to discover a new agreement algorithm that is as practical or more satisfactory than proof-of-work.

What is proof-of-stake and how is it different to proof-of-work?

In 2011 a Bitcointalk forum user called QuantumMechanic proposed a technique that he called “proof-of-stake”. The basic idea is that letting everyone compete against each other with mining is wasteful. So, instead, proof-of-stake uses an election process in which 1 node is randomly chosen to validate the next block. 

What Is The Next Big Thing in Blockchain? Proof of stake explanation

How does proof-of-stake work?

Proof-of-stake has no miners but instead has validators, and it doesn’t let people mine blocks but, instead “mint” or “forge” blocks. Validators here are not chosen completely randomly here. 

To become a validator, a node has to deposit a certain amount of points into the network as a stake. You can consider this as a security deposit. The size of the stake determines the chances of a validator to be chosen to forge the next block. For example, if I deposit $1 and you deposit $10, now you have a 10 times higher chance to get the next block. Although this might not appear fair, because it favors the rich, but in reality, it’s fair compared to proof-of-work. With proof-of-work, rich people can enjoy the power of economies at scale. 

How can we trust other validators on the network?

That’s where the stake comes in. Validators will lose a part of their stake if they approve fraudulent transactions. As long as the stake is higher than the amount the validator gets from the transaction fees, we can trust them to correctly do their job. If not, they lose more money than they gain. 

So, the difference between proof-of-work and proof-of-stake is quite significant. Proof-of-stake does not let everyone mine for new blocks and therefore uses considerably less energy. It is also more decentralized. 

How is Ethereum trying to address the shortcomings of the Blockchain calculation cost?

Ethereum is working on implementing a proof-of-stake system that they call Casper. It is currently deployed on the Ethereum testnet and is actively being developed. Moreover, the Cardano project has long been working on creating a provable secure proof-of-stake algorithm that they call Ouroboros. 

What use are NFTs?

The Non-Fungible-Token sensation has swept across the globe, attracting fans of collectibles, crypto investors. Fundamentally NFTs are more than just collectible digital acquisitions on the blockchain. Currently, NFTs have turned into a new art medium across the world. But, NFTs are more than just a JPEG.

How are NFTs changing the World?

NFTs are largely attributed to blockchains’ inherent characteristics, such as immutability of records, freedom of distribution, ease of coding, transaction speeds, and the ability for assets to be traded among other users. Of course, these features and capabilities are beneficial for creators and collectors around the globe.

For creators like artists and collectors of unique assets, NFTs defend their copyright and provide royalty incentives from the subsequent resale of their work on the secondary market. NFTs even leverage blockchain technology to remove the middleman and deliver a route for any creator to showcase their work globally.

Overall, we have both technological and competitive challenges means there is a long road ahead for us. But the best route to make it function is to try. Besides, there are lots of niche start-ups trying to build beneficial systems for society and we are seeing betterments often. And who knows that something goes upside down and smart contracts rule a huge part of the world. Only time will tell.

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