The big innovation with bitcoin is the combination of different parts that interact through financial incentives. Two important such elements are the combination of the blockchain and “proof of work” mining (pow).
For the first time in the history of the world, this has enabled a decentralized system, which makes it impossible to try to roll back the blockchain and to double spend transactions.
To this day, “proof of work” is still the only method we know that can secure and decentralize a cryptocurrency. People criticize the method without realizing that it actually fulfills a vital function and creates value, or present a better option. There is no alternative!
Value is subjective
Oftentimes we hear that bitcoin mining wastes huge amounts of energy. The problem with this kind of thinking is that in a free market, everyone can decide what they want to spend their money on. What is a waste for one person is value for someone else.
Bitcoin as a system and miners that secure the network create enormous value for many people and if a value has been created, then the cost people pay through inflation and transaction fees is not a waste.
Bitcoin mining with green energy sources
Bitcoin mining is an industry with extremely tough competition. Fortunately, bitcoin is completely independent of geographic location, which means that in the long term mining is shifted to green energy sources in remote locations where energy normally cannot be used or transported.
The energy that had not been used anyways is not a waste. We already see how Iceland has become an important place for bitcoin miners with their renewable energy.
Much of the mining takes place in China
However, today much of the mining in China is still taking place with fossil fuels. If this is a problem with CO2 (carbon dioxide) and the climate, then we simply need to tax, regulate or ban fossil fuels – not bitcoin.
The claim that individual transactions are expensive in electricity costs, something that would bring the whole world’s energy to bitcoin in the future when usage increases, is also wrong because there is no link between the number of transactions and the energy consumption. For example, a single “on chain” transaction could mean a million transactions “off chain” in sidechains or payment channels across the “Lightning Network”.
“Proof of stake” suffers from security issues
“Proof of stake” (pos), which is fast mining without electricity costs, is sold as the latest innovation that solves the problem with “proof of work”.
Unfortunately, “proof of stake” suffers from various types of fundamental unresolved security issues, including “long-range attack”, which means that a person can retrieve or purchase old used private keys and ultimately use them to build a new, longer blockchain as this does not cost anything. Wallets will not be able to see the difference between which chain is correct and false.
Ethereum is about to adopt “proof of stake”, but they will have to solve this problem by periodically creating “anchors” in the much safer “proof of work” chain.
That assertion that “proof of stake” would not “cost” anything is not entirely true, because “proof of stake” is based on the fact that miners lock up large amounts of capital in order to “stake” them. These are resources that could have been invested in something else in the economy, just as much as the resources used in the “proof of work” mining.
Simon Lindh,
Bitcoin enthusiast
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