Proof of Work mining (the protocol underpinning Bitcoin and many others) uses as much energy as the nation Denmark. It’s a costly and lengthy process, and with the user base growing traditional blockchains are struggling.
This is because every single transaction needs to be ‘mined’ by powerful computers solving complex mathematical problems. It’s a process that ensures the security of the network, preventing double spends and other malicious actions. Whilst effective, the energy inefficiency of this process is truly staggering. And that’s not all. With each transaction needing a lengthy confirmation process, the blockchain cannot scale easily as more and more users join the network. Bitcoin transactions are now unbearably slow and expensive, with long backlogs of transactions waiting their turn.
Ethereum too is suffering from the same issue. Although the network can currently handle around fifteen transactions per second, significantly more than Bitcoin, we need only look at the recent Cryptokitties mania to see the crippling effect of high network load. Backlogs of transactions quickly built up and transaction prices skyrocketed as users fought to get included in the next block. With the severe limitations proof of work seen, it seems impossible for real-world use cases to succeed. VISA and other non-blockchains handle thousands of transactions per second, and if the many projects emerging in the crypto space are to compete, something needs to change.
Vitalik Buterin, mastermind of the Ethereum system, aims to introduce what is known as a Proof of Stake this year. The upgrade to the network is known as Casper, and it promises to be a game changer. Instead of powerful miners verifying transactions on the network, users will be able to ‘stake’ their Ether. If the stakers act honestly, confirming legitimate transactions, they will be rewarded with interest proportional to their stake. If the stakers act maliciously and try to cheat the system, their stake will be lost. The chief developer behind Casper is Vlad Zamfir, who has been working on the upgrade since 2014. It has been live on the Ethereum testnet since January and currently requires 1500 eth to participate. It’s likely that this number will be lowered when the mainnet release happens, and if you’re worried you still might not be able to participate, don’t be! Staking pools will work similarly to current mining pools, where users pool their resources and share the rewards.