Why Proof of Stake Is Bad For The Environment

Proof of stake environmental impact

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The last few years of bitcoin have been heavily energy FUD related as the network continues to grow and gobble up stranded energy reserves, underutilised energy reserves, bootstrap renewable and new energy creation and much more. Bitcoins energy hungry nature has produced so much good, yet this is all dismissed by so-called experts.

All the bitcoin naysayers can focus on is that bitcoin uses energy, and because they don’t understand bitcoin, that energy usage is a waste. It’s only numbers in a ledger; why does it need energy? Why can’t you use a different consensus method?

If there’s one argument that I simply cannot stand by and allow to proliferate is that proof of stake is a superior consensus method to proof of work.

We’ve seen campaigns from the likes of Green Peace, advocating for bitcoin to change its code base in some attempt to put pressure on the network. We’ve seen another proof of work chain switch over to proof of stake, which many claim that it proves it can be done. To me, it’s only a reflection that the network in question was already so centralised that ripping out a fundamental part of the ecosystem was so trivial.

In bitcoin, a truly decentralised network, trying to convince thousands of nodes worldwide to go against their better interests is a much harder prospect. This resistance against change ensures that bitcoin can’t be pressured by nation-states, climate activists, or competing industries.

As long as bitcoin incentives remain intact, the network will not change. Don’t like it? Tough titties. Don’t use bitcoin. There is plenty of proof of soy networks ready to take your money and make you feel better about your low carbon transaction on a higher carbon footprint coffee purchase.

The narrative gets backing

Bitcoin is boiling the oceans, bitcoin is a waste of energy, and all these narratives are an attack on proof of work. An attempt to demonise it and greenwash proof of stake, but if proof of stake were superior, it would win out in such a competitive market regardless of marketing and narrative.

If what they claim is true and a monetary network benefits from using less energy, then bitcoin would baulk under the weight of its energy demands and proof of stake chains would reign supreme.

But it’s not the case, and will never be the case, despite what your peer-reviewed studies might claim. Bitcoin continues, the hash rate continues to increase, and it continues to demonetise other networks; that’s the reality of the situation.

I am no blockchain expert; I am no developer, I am no energy expert, I am no PhD in environmental studies, I am just looking at the facts and arguments presented in front of me, and I don’t buy them.

It’s not about gross energy use but net energy application

I’ve seen many studies online about how bitcoin uses more energy than the entire country of Sweden or pick a country; they’ve done a study on it. These studies tend to compare gross energy usage and assume that if something uses a lot of energy, it is bad.

It is really kindergarten-level arguments from people with proof of stake PhDs in their title, but I’ll leave Saifedean Ammous to tackle that; he does it better than anyone else, having survived in the belly of that beast.

Now back to the energy argument, Is every single person in Sweden using their energy for productive means? How much energy is being used on completely frivolous pursuits every day? We don’t know, and it really shouldn’t matter if you paid for the energy at the market rate, hang your lights out, watch your Netflix, or run your tumble dryer.

Bitcoiners on Twitter will naturally act as a defensive mechanism to this FUD and counter with arguments like bitcoin uses less energy than Christmas lights or air-conditioners. Others will cite studies on the amount of renewable energy bitcoin uses and that it has a lower carbon footprint than suggested by these studies.

These are points that work in today’s context but not one that holds up long term; as bitcoin grows, it’s going to gobble up more energy than Christmas lights, and as renewables continue to fail to lower costs, bitcoin will continue to rely on hydrocarbons, that’s a fact.

I think a better argument to make is that compared to any other system, bitcoin at the time is the better use of that energy.

Energy markets don’t lie

Here’s the case, someone, somewhere in the world, who had spare capital, looked at what they could do with it to generate a return. After reviewing all their options, other pursuits seemed less attractive, and they opted for bitcoin mining. They acquired the equipment, set it up, purchased the claims for electricity and run their operation.

If this person’s economic calculations are correct, they will remain in operation; if not, they’ll shut down, accept the losses and sell that equipment to someone somewhere in the world where it does make sense to mine.

Nothing was stolen, and everyone in the value chain was compensated fairly.

If someone purchases energy, they have the right to do with it as they please, and the amount of energy they use as long as they paid for it doesn’t make a difference. If you offered that bitcoin miner an option where they could shut down their miner and sell off the equipment and divert that energy to something more economical, don’t you think these rational actors would do that?

Bitcoin miners are there to use energy that couldn’t be used profitably for something else; if there is enough energy supply for a hungry bitcoin miner than other industries and residential areas clearly are not using the generation capacity to its fullest.

In energy production, once that turbine starts turning, if you don’t use it, you lose it, and bitcoin is merely trying to capture some of the energy others were never going to use that the time and driving it into securing the network.

We shouldn’t look at bitcoin as some energy-absorbing monstrosity but rather as a reflection of how supply and demand in energy is a tricky business and how we’re constantly having to produce the energy we’re not consuming immediately.

Bitcoin is the buyer of last resort, not the first in line.

Proof of stake doesn’t use its energy efficiently

Let’s get this out of the way first; bitcoin uses a lot more energy than proof of stake chains, that’s a fact. I’ve given you the reasons for bitcoins energy use and why it’s effective. Now let’s consider how proof of stake in the current ecosystem uses energy and ask if it’s an effective use of energy.

In proof of stake, you’re running all these validator nodes, you’re taking up cloud storage on an increasingly bloated blockchain, and all this could be streamlined even further. Simply use one database; why have many? You’re wasting resources here; why do you need to keep the history of all transactions of projects that issued tokens that have long since died and gone to zero?

Why do you have to keep a record of all the failed projects that tried to issue a token on your chain and gone to zero? Why do you have to keep copies of wrapped tokens representing value on other chains? It seems like double work.

Why are there more than one proof of stake chains with the same token like a stablecoin across these various chains that aren’t exactly interoperable?

Why are there second-layer networks abstracting transactions into their blockchains on a different cloud platform?

What is the point of all this duplication? If it’s all about keeping records, can’t a centralised entity do it faster, better and save on resources? To me, it sounds like a lot of complexity theatre and doing double work for no apparent benefit.

To me, proof of stake chains are wasting energy and therefore are bad for the environment.

Proof of stake dilutes market signals

Proof of stake chains and their highly centralised nature and form of governance is always going to be subject to interventionist policies. We see it all the time, tokens need to be burned, issuing rates change, and staking rewards change, all in an attempt to keep market actors committed to their network. In bitcoin, we already know the monetary policy. It hasn’t changed in over a decade, and changing it would be a battle of epic proportions. Bitcoin users with the known variables can either decide to contribute resources to bitcoin mining or fiat mining.

In proof of stake, you have large swaths of people worried they might be diluted, might not be getting the maximum out of their funds and have to waste mental capacity and time following their favourite overlord developer’s AMA’s. Do you really think that millions of people following tweets, sentiment online, developer patches, and announcements trying to trade around it is a valuable use of time and resources?

Do you think a system built on speculation and encourages capital to be thrown in not on fundamentals but on the hope that a narrative sticks are an efficient use of time and energy? I don’t think so.

Manipulating money drives the misallocation of resources, which is always bad for the environment and the human race.

Proof of stake is bad for the environment.

Proof of stake wastes energy

Proof of work is an energy-intensive and physical resource-intensive system, and if you don’t have the right equipment and the ideal cost per unit of energy, you’re not going to be competing in this game of mining.

In proof of stake, the barrier to entry is eliminated, all you need to do is hand over your funds to those willing to run a validator, and they’ll issue you a piece of the rewards. When the barrier to creating a chain and native asset is low, you’ll find that competition is high.

It will take you all of 5 minutes to review a coin aggregator site and see how many proof of work chains exist versus how many proof of stake chains exist. As these proof of stake chains compete with one another, they offer different returns to attract capital, and constantly intervene in their monetary policy to try and push the price upward or the reward issuance upward to keep participants interested in the network.

This interventionist policy employed by all POS chains is a race to the bottom, and eventually, the weaker ones get priced out of the market.

Now when a proof of stake chain fails, and many will, what happens to all the energy used to host that validator? What happens to all the energy used to keep meaningless records of their now defuncted blockchain? What happens to all those who held the token as the network’s native asset went to zero?

Well, they have to eat the losses and have to accept that their network was a complete waste of time and energy.

Proof of stake is bad for the environment.

Proof of stake discourages self-determination

In a proof of work system, if you’re priced out of mining, and don’t have the expertise or access to resources, you’re forced to look at alternative means of value creation to acquire bitcoin. If you’re a carpenter, you’re not going to give it all up to try and become a bitcoin miner. No, you’re going to leverage your expertise from years of experience, acquire wood and the tools you need and create something you can sell for a profit.

You’re forced to go out and find other profitable ventures since there is no free lunch in bitcoin.

Consider my example of the carpenter. In a proof of stake system, instead of deploying your capital to purchase tools, stock, develop a skill and create products and services people need, you deploy your capital to a network that rewards you with an arbitrary interest rate.

Instead of that capital chasing goods and services to drive productivity and make economic creation cheaper and faster. That capital is locked in a system that rent seeks off the economic actors who do use this type of money for real economic trade.

Instead of encouraging you to go out and better yourself and become the most productive individual, proof of stake lulls people into the false sense that everyone and anyone can parasite off of the working class.

If the productive class figure out, they’re being robbed and follow incentives and leave the network for one that rewards them. The entire parasite class collapses under the weight of its incompetence. Instead of having more productive people, you have people sitting around trying to game a system to attain wealth.

How is that an efficient use of capital, skills and time? I don’t think it is; it’s a waste.

Proof of stake is bad for the environment.

Proof of stake is wasteful

If we are to shape a society that can not only sustain the 8 billion people we have on the planet, we have first to start plugging the gaping holes in the way we communicate value to one another. We’re not going to get there by adding even more dilutive methods of measuring value; what we need is a monetary base that is so rigid it and so costly that it forces human ingenuity out of finance and into markets where we need it most.

Once we have accepted that bitcoin is the baseline for energy usage or the “risk-free” rate of using energy, then market participants can go out and compare if other actions are worth our time and energy. If not, we can either focus on mining bitcoin or focus on finding something the market deems valuable and offers you a premium to push your time and access to energy to produce.

Once we accept this error correction element of bitcoin, industries that are wasteful will be forced to clean up their act, scale or downsize to operations that are economically viable. Capital that has been trapped in certain industries due to political will or nepotism will either be moved out by choice or stripped from those people through creative destruction.

Under a proof of work standard, business operations are constantly being repriced against this cost and the creation of global money.

What is your take on proof of stake?

Do you buy into any of the arguments proof of stake advocates make? Is there any merit to their arguments? Let us know in the comments below; we’re always keen to hear the opinions of others.

Disclaimer: This article should not be taken as, and is not intended to provide any investment advice. It is for educational and entertainment purposes only. As of the time posting, the writers may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency, as all investments contain risk. All opinions expressed in these articles are my own and are in no way a reflection of the opinions of The Bitcoin Manual

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