“Massive electric consumption by cryptocurrency mining:
An unfortunate environmental nightmare will soon pass!
… Proof-of-Work alternatives are on the horizon”

A considerable amount of electricity is used in the process of mining Bitcoin and other cryptocurrencies. Miners are effectively distributed bookkeepers, and this use of resources is part of a system called “proof-of-work”. It keeps the books fair, honest, and without an ability for the miners to collude (In other words, they cannot ‘cook the books’).

What makes the process unique and exciting is that this “distributed consensus” does not require a trusted authority, like a bank. In fact, the whole point of the blockchain revolution is that users trust a mechanism rather than a bank, government or even each other.

But, for any network that hopes to become part of the financial fabric, it must be ubiquitous and in constant motion. Proof-of-work just doesn’t make the grade, because it doesn’t scale. The need for miners to prove that they did something complex sucks up too much power. If Bitcoin or any proof-of-work currency were to be adopted for even a small fraction of commercial and personal transactions, it would overwhelm the world’s energy services.

One reader suggests the problem will be solved by the recent boom in shale fracking and renewable, non-polluting energy. He points out that crypto mining may even drive a market for distributed, clean electric production.

Unfortunately, clean and cheap power makes the problem worse. Even if electric capacity were to rise dramatically and experience a great cost reduction, cryptocurrency networks would automatically demand all the extra electricity. It is a no-win game, because mining incentives escalate with an increase in supply or drop in cost.

Will large-scale, blockchain-based networks fail, because of enormous electric demand? Fortunately, the future is not so bad, after all. Although networks, like Bitcoin, currently use proof-of-work to ensure honesty and fairness, it is only one of many possible measurement and enforcement mechanisms. Eventually, developers and miners will swap in another proof mechanism to keep the network humming—and without creating an environmental catastrophe.

Will Change in Proof Come in Time?

The political process for changing the fairness mechanism (“forking the code”) is complex and fraught with infighting, but the problem will eventually be addressed, and it will be solved before electricity becomes a critical issue. Despite a messy voting process, the miners have too much at stake to ignore this problem much longer.

Various proof alternatives are already being used in altcoins. Since Bitcoin is perfectly free to steal these techniques (none can be protected by patent or trade secrecy), we can think of these other coins as beta-tests for Bitcoin. How so? As the first and biggest elephant in the room, Bitcoin will likely reign supreme, as long as it doesn’t wait too long before grabbing the best technology and tucking it into its quiver.

Proof-of-Work Alternatives

• One method, already used by some altcoins, is called “proof-of-stake”. It’s a bit like getting voting rights based on how much land you own. This method does not demand lots of electricity—but some analysts feel that is not as fair, because it cedes network control to the wealthiest members.
• Another method, called BFT Replication was developed by Marko Vukolić, at the IBM Blockchain Group in Zurich Switzerland. It might be exactly what we need.
• Yet another method was proposed by C.V. Alkan, an amateur analyst with a passion to solve this problem. He calls it Distributed Objective Consensus.

These aren’t the only alternatives to proof-of-work. Ultimately, one or more of these fairness enforcement mechanisms will make its way into Bitcoin and other currencies and blockchain services. In my opinion, the electrical crisis is a genuine threat, but it is one that with a solution that will be implemented soon—perhaps even this year.

Related:

• Distributed Consensus: Beyond POW or POS
• Blockchain Scalability: Proof-of-Work vs BFT Replication
• Incentivize Bitcoin Miners After All 21M BTC Are Awarded

Philip Raymond co-chairs CRYPSA, publishes A Wild Duck and hosts the New York Bitcoin Event. He is keynote speaker at the Cryptocurrency Expo in India this month. Click Here to inquire about a presentation or consulting engagement.

But a distributed consensus mechanism is only effective and faithful if the community is impartial. To be impartial, voters must be fairly separated. That is, there must be no collusion enabled by concentration or hidden collaboration. They must be separated from the buyer and seller; they must be separated from the big stakeholders; and they must be separated from each other. Without believable and measurable separation, all sorts of problems ensue. One problem that has made news in the Bitcoin word is the geographical concentration of miners and mining pools.

A distributed or decentralized transaction validation is typically achieved based on Proof-of-Work (POW) or Proof-of-Stake (POS). [explain]. But in practice, these methodologies exhibit subtle problems…

The problem is that Proof-of-Work can waste an enormous amount of energy and both techniques result in a concentration of power (either by geography or by special interest) — rather than a fair, distributed consensus.

In a quasi-formal paper, C.V. Alkan describes a fresh approach to Blockchain consensus. that he calls Distributed Objective Consensus. As you try to absorb his mechanism, you encounter concepts of Sybil attacks, minting inequality, the “nothing-at-stake” problem, punishment schemes and heartbeat transactions. Could Alkan’s distributed consensus mechanism be too complex for the public to understand or use?…

While I have a concern that time stamps and parent-child schemes may degrade user anonymity, the complexity doesn’t concern me. Alkan’s paper is a technical proposal for magic under the covers. Properly implemented, a buyer and seller (and even a miner) needn’t fully understand the science. The user interface to their wallet or financial statement would certainly be shielded from the underlying mechanics.

Put another way: You would not expect a user to understand the mechanism any more than an airline passenger understands the combustion process inside a jet engine. They only want to know:

• Does it work?  •  Is it safe?  •  Is it cost effective?  •  Will I get there on time?

So will Alkan’s Decentralized Objective Consensus solve the resource and concentration problems that creep into POW and POS? Perhaps. At first glance, his technical presentation appears promising. I will return to explore the impact on privacy and anonymity, which is my personal hot button. It is a critical component for long term success of any coin transaction system built on distributed consensus. That is, forensic access and analysis of a wallet or transaction audit trail must be impossible without the consent and participation of at least one party to a transaction.

_{Philip Raymond co-chairs CRYPSA and The Bitcoin Event. He is a  Lifeboat board member, editor}
^{at AWildDuck and will deliver the keynote address at Digital Currency Summit in Johannesburg.}