Can Bitcoin move to proof of stake?
With Ethereum moving from the proof of work (POW) algorithm to proof of stake (POS). Many people start to wonder if Bitcoin could also do this.
In theory, yes Bitcoin could switch to POS, but people in Bitcoin do not really want this. Because this would destroy the idea that Bitcoin creates and its main purpose. However many malicious campaigns like “clean up bitcoin” from several competing coins try to bring it into bad light by advertising to change Bitcoin’s code.
Although the Bitcoin network does use a lot of energy to keep its consensus. It needs this to keep the blockchain decentralized and not controlled by only the rich or specific central entities. This is super important as it keeps the Bitcoin network in control of the people. And yes this does cost some energy, but campaigns to change the code by Ripple and Greenpeace tell the facts very twisted.
They for example forget to mention that Bitcoin pushes green energy use for everyone as it is cheaper and more efficient to mine BTC with renewable energy. For the miners to use this energy they invest in energy grit infrastructure and renewable energy sources. On top of that Bitcoin miners help reduce emissions from oil and gas producers by burning the flare gas that would else be released into the air. Which would cause more harm to the environment.
Yes, Bitcoin could move to POS but this would destroy its purpose and its positive impact on the road to global renewable energy grids. POS does work fine for other blockchains however as it is a good algorithm. But it should not be implemented on the global monetary value layer.
What is proof of stake?
So you know why Bitcoin should not really move to POS but what is Proof of Stake really? Well, in the POS consensus algorithm the blockchain does not make use of crypto miners but instead of stakers. These stakers are people that lock the coin/token of that blockchain and in return gain the opportunity to validate transactions on that blockchain.
Validating transactions on any blockchain is a desirable thing to do as the validator will be rewarded with either new coins, the transaction fee, or both. This method lets validators not compete with the amount of energy they use but rather with the number of tokens they hold.
Because of this POS uses much less energy than POW blockchains. However, the large holders of the tokens will also control the blockchain and receive the newest tokens or transaction fees. This will put the control and most of the value in the hands of a certain few. Making the system in some way a bit centralized over time.
This is not necessarily a problem in a multi-chain blockchain environment where all the chains interact with one another. But this would most likely result in many different tokens that are used by different groups of people that follow the ideology of that blockchain. However, because these coins end up being somewhat centralized they will also be at risk of having the same problems that we see in today’s fiat currencies.
If a coin would have to be a global and lasting currency. It is of utmost importance that it is completely decentralized on its base layer. And thus no big holder or rich person could just change the code. Bitcoin does this and thus functions as the perfect global currency.
This does not mean though that there is no place for POS blockchains when it comes to the more complex application layers or layer 2’s. As these do not require as much decentralization as a global currency does.
What is proof of work?
Proof of Work is the current consensus algorithm used by the Bitcoin blockchain, some other chains that use the Bitcoin name, and a few smaller blockchains that try to compete with Bitcoin. The proof of work consensus mechanism is known for its energy use. But why does it do this?
Well to put it simply. POW uses energy because it needs to power a lot of computers that try to guess a mathematical problem. The first one to guess the problem will be rewarded with some BTC and the transaction fees paid by everyone. To be the first in this race to guess this math problem, people buy more computers to guess at the same time and use energy to do so. This energy will in some way thus be converted into BTC which makes BTC in some form connected to the global energy price.
POW keeps blockchain like Bitcoin most importantly strong and decentralized. Because one can not simply buy so many computers to try to overtake the network. Which would not be worth anything anymore if they would succeed. Meaning a potentially large enough attacker would just throw away their own money. And it becomes very decentralized as holding more of the value/coins on the Bitcoin blockchain, will not give you more voting power. Voting power only comes from those that want to partake in mining BTC with a computer and some electricity and those that run a Bitcoin node. Two things that almost anyone in the world can do as long as they have electricity and access to the internet. Although you could even do it without an internet connection in theory.
This makes Proof of work a perfect consensus algorithm for a global reserve currency that only changes if EVERYONE wants it to change.
POW vs POS
Both POW and POS have their own benefits. But which one is better? Well, that depends on the use case of the blockchain and/or sidechain and its final goal. Blockchains like Bitcoin aim to be the global store of value and transaction currency of the internet and other blockchains like Ethereum that try to be the application layer of the internet. And all the other blockchains with a form of or a combination of the Proof of Stake consensus model.
Simply put POS can keep a blockchains consensus much cheaper. With the validators of the blockchain not having to spend a lot of money on electricity. This would make for a greener layer but does give up a bit of its decentralization. Because the biggest holders of the main token on that blockchain will hold control over it for a very long time (or forever). This does not allow small-time users to really participate in the governance. This is alright in a large multi-chain ecosystem where people can just hub on to another chain if they don’t like the rules on a certain one.
This process could be more decentralized and robust if it used proof of work. But to do so would make it much more expensive and energy-consuming for both the validator and the user alike. Which would not be so nice for the environment or the users. Especially if many different blockchains do so and all do it with a small amount of computer power. If it would be distributed over many different blockchains.
The only real exception to this rule is cryptocurrencies like Bitcoin that function as a currency layer. This has to be decentralized to keep it out of the hands of people will bad intentions and as an access point that everyone can use.
We see this in the future turning into a world with a POW cryptocurrency and many POS application layer blockchains and layer 2’s. This way people can use whatever blockchain and its rules for a GameFi, DeFi, NFT, etc. ecosystem. But always fall back on their stable and fully permissionless currency, Bitcoin.
Will Proof of stake kill mining?
In some way, proof of stake will kill mining for Ethereum. As it switches from proof of work to proof of stake. However, this does not mean crypto mining will stop. It will only stop on Ethereum.
These same miners will most likely direct their computer power to another blockchain like Bitcoin or maybe the Flux ecosystem that also uses a form of POW. Which blockchains Ethereum’s mining power will go to will highly depend on where they can get the most profit at that time. The market for computer power however is high and these miners will surely find a way to make the best use of their computers.
For Ethereum, it means that it will lose this element of its blockchain and will instead be more reliant on its token holders for a governance model.
Proof of stake coins
Many of the newest layer one blockchains have started to use a version of the POS consensus. With almost no new blockchains coming up with POW. All of these new POS blockchains also function more like an application layer than as a virtual currency with many coins and tokens built on top of them. All of their tokens usually have a use case that still gives lots of value to these blockchain tokens and makes them interesting as investments to many.
Thanks to these newer blockchains and sidechains we have seen many ways how crypto can earn interest of its users and let them trade freely by using DEXes and other DeFi tools. This is now even possible on Bitcoin by using its sidechains that are anchored into the main Bitcoin blockchain.
On top of that many POS, blockchains have implemented a version of EIP-1559 which burns parts of transaction fees. Making some POS blockchains deflationary and thus giving value back to their holders. And hold a more steady value within their ecosystems.
Evergrowing POS chains
The list of POS blockchains is an ever-growing list with many companies trying to spin up their own. Almost every big crypto exchange has already built a smart chain behind its own token. Even some teams try to recreate Bitcoin on a POS model but no success has been achieved from this so far. This is not a bad thing as a multi-chain ecosystem brings more diversity to all proof of stake networks. And because most of them make use of EVMs (Ethereum Virtual Machine) and EVM wallets the development of code on one chain can also be used on another. Making the innovation that occurs on any chain is also an innovation for the others.
We hope you now understand a bit better why Bitcoin can not move to proof of stake. And what the differences between POS and POW are. So please keep in that in mind that both have their own positive and negative use cases but both are necessary for the future of finance, the internet, and human freedom. So please do not listen to bad campaigns mocking either one of these models with a very superficial view.
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