Most people purchase bitcoins for their own reasons. But all of the combined transactions have required a tremendous amount of computing power, and thus energy, to process and finalize.
The one thing a lot of casual cryptocurrency users do not understand is how much power it takes to keep a blockchain ledger up-to-date. The amount of power now being consumed by an ever-growing Bitcoin blockchain is so intense that individual miners have been priced out of mining. Most Bitcoin Mining is now reserved for a few big companies with dozens of high-powered servers and the finances to run them.
This begs the question of whether there is a better way to do things. Is there a greener way to implement blockchain so as to not consume so much electricity? Absolutely. In fact, the man responsible for inventing torrent technology is now working on a new, greener cryptocurrency known as Chia.
BitTorrent inventor Bram Cohen has implemented a new way to verify transactions and build blocks without having to use Bitcoin's proof-of-work (PoW) algorithm, or anything similar for that matter. He says his proof-of-space (PoS) algorithm is faster, more secure, and uses a fraction of the energy.
How transactions are verified
For cryptocurrency transactions to be considered legitimate and irreversible, they must be verified and then agreed to by all the mining nodes on the network. For purposes of illustration, the explanation you are about to read is based on Bitcoin's system. Most other cryptocurrencies have a system either derived from Bitcoin or another system that is very similar.
When you bought your bitcoin to perhaps gamble, the information from that transaction was immediately sent to the Bitcoin network for mining. All the miners on the network then went to work processing the transaction along with any others that will eventually be part of the new block.
Processing the transactions requires solving a complicated mathematical puzzle involving hashes. The first miner to complete the puzzle 'wins', so to speak, and is rewarded with bitcoin for the work done. The remaining miners complete their processing as well. As long as all of them come up with the same result as the first miner, all the transactions in that block are verified and made permanent, and the new block is added to the chain.
The PoW concept
It would have been fairly easy for Bitcoin developers to create a blockchain that required very little effort to verify transactions. But they couldn't afford to create a financial system that was so insecure. So to beef up security and simultaneously make hacking not worthwhile, they latched onto the PoW concept.
Proof-of-work exists within Bitcoin's blockchain to force miners to put serious effort into verifying transactions. It is practically implemented through an algorithm that takes into account transaction information and individual hashes. The hashes, when plugged into a mathematical formula, produce a certain result that the Bitcoin network is looking for.
Having said that, one of the peculiarities of Bitcoin's PoW algorithm is that each block must contain all the hashes of previous blocks, in addition to its own, in order to complete the equation. The end result is that the total number of hashes necessary to solve the problem grows with each new block added to the chain.
This is why mining is now so resource hungry. The nodes now have to perform exponentially more computations in order to solve the puzzle. That is exacerbated by the fact that the Bitcoin code manipulates new hashes on-the-fly as a means of regulating the speed at which blocks are verified and added to the chain. The goal is to keep processing time at about 10 minutes per block.
Replacing PoW with PoS
PoW is seen as a necessary evil that protects Bitcoin's blockchain from hackers and scammers. It has done that, but it has also created what Cohen and others believe is an untenable situation: it has slowly consolidated mining into a small number of powerful miners that now exert far too much control over the Bitcoin network.
Cohen thinks there is a better way to do things, a way that avoids mining consolidation and uses a lot less energy. His proof-of-space algorithm relies on unused hard disk space rather than raw computing power.
Also known as proof-of-capacity (PoC), PoS relies on miners allocating and reserving a certain portion of their unused disk space to process transactions. Where PoW requires nodes to solve a complex mathematical problem and then return a token to prove the problem has been solved, a PoS algorithm looks for something different.
Under a PoS system, transaction information is sent across the network and picked up by miners. Said miners solve a much more limited puzzle that includes allocating a certain amount of disk space for that information. They send back a token with the answer to the puzzle and digital proof that the right amount of disk space has been allocated. Once all the nodes in the network send back the same information, the data is considered verified and made permanent.
Without getting into too much detail, the PoS miner uses what is known as a hard-to-pebble graph to verify that the proper amount of disk space has been allocated. This graph actually labels the hard disk space to prove that it has been allocated AND that allocation has taken place via several random locations on the associated hard drive.
Benefits of the PoS System
So, is Cohen's dream of a greener cryptocurrency through PoS viable? Yes, it is. A PoS-based blockchain offers a number of benefits that could easily make it competitive if cryptocurrency users were willing to take the plunge. The most obvious benefit is that PoS uses exponentially less power.
The lower power requirements associated with PoS are found in the fact that the puzzle being solved by miners is much less complicated. Likewise, the puzzle does not continue to grow in size and complexity with each added block. It remains constant. What changes is the allocation of hard disk space that verifies a node has actually processed transaction data properly.
It takes a lot less energy to rearrange unused hard disk space than it does to complete a complex mathematical algorithm. That is the beauty of PoS. For purposes of illustration, imagine having to complete a multi-step equation using an abacus as opposed to writing everything on a piece of paper.
A problem that would take 10 minutes and an awful lot of brain power to do on paper can be completed with an abacus in under a minute simply by sliding beads back and forth. You reach the same conclusion using both methods, but the abacus method is a lot faster and requires significantly less effort.
Addressing the consolidation problem
Another big benefit of the PoS system is that it reduces the likelihood of consolidating mining under a small number of miners with excess financial resources. As Cohen explains, millions of computer users around the world have far more hard drive space than they will ever use. Anyone with a decent laptop or desktop could mine Chia without having to build a special rig. They can set their computers to mine in the background 24 hours a day, seven days a week, 365 days a year.
How does this benefit Chia? By not allowing a small number of miners to monopolize the network and, thereby, control the value of the coin. The more miners involved in mining, the more competition among them. That keeps everybody involved in mining honest.
There are concerns that Cohen's PoS system would be easier to hack than Bitcoin's PoW blockchain, but Cohen insists that PoS has a built-in defense based on volume. In other words, while it would be theoretically possible to launch an attack on the network that could result in reversing transactions and stealing coin, the number of hard disks necessary to pull off such an attack would cost more than the value of any potential theft. Cohen says any such attack is just not financially worth it.
The market will decide
Cohen was hoping to have Chia ready to go by the end of 2018. He has had to push back the date to sometime in 2019 as he's still working out some of the platform's finer details. When Chia finally does make its debut, it is anyone's guess as to whether it will succeed or not. Ultimately, the market will decide.
If cryptocurrency users decide they like the way Chia does things, the coin could do very well in the coming years. If they do not, it will fade away into the sunset with no harm done. Personally, we hope it succeeds. Competition is good in the cryptocurrency space.
Visit https://chia.net/ for more info.