The BSV Association welcomes the European Institution’s decision not to ban proof-of-work consensus mechanisms and encourages further discussions around its efficiency and environmental-friendliness.



As these discussions continue, the Association wishes to highlight several harmful misconceptions around proof-of-work consensus mechanisms in the <a href="https://www.bsvblockchain.org/news/new-laws-for-digital-assets-in-europe-what-to-expect" target="_blank" rel="noopener">MiCA Regulation negotiations within the wider blockchain sector</a>, which has led to incorrect statements about their energy usage.



<h2 class="wp-block-heading" id="h-misconceptions-about-proof-of-work">Misconceptions about proof-of-work</h2>



One of the biggest <a href="https://www.bsvblockchain.org/news/a-common-misconception-around-proof-of-work" target="_blank" rel="noopener">misconceptions around the proof-of-work consensus mechanism</a> has come about due to the increasing popularity of blockchain and crypto-asset trading. As the volume of activity involving tokens like BTC and Ether (ETH) grows, it has become slower and costlier to record and <a href="https://www.bloomberg.com/news/articles/2022-09-07/the-blockchain-trilemma-that-s-holding-back-crypto-quicktake" target="_blank" rel="noopener nofollow">secure each transaction</a>. This has been dubbed the so-called <a href="https://www.bsvblockchain.org/news/bsv-solves-the-blockchain-trilemma" target="_blank" rel="noopener">‘blockchain trilemma’</a> and is often used as an excuse for a network’s inability to provide the unmatched properties of proof-of-work.



This <a href="https://www.bsvblockchain.org/news/there-is-no-blockchain-trilemma-the-answer-is-bitcoin-sv" target="_blank" rel="noopener">blockchain trilemma</a> suggests that while a perfect blockchain is decentralised, secure, and scaled, no such blockchain exists because to have two of these three properties, you have to sacrifice one. There have been various efforts to fix the problem, but all of them either make the system more vulnerable to bad actors or water down the model that’s key to the appeal of a blockchain.



However, this thinking fails to take into account the intended use case for proof-of-work. With proof-of-work all three properties are achieved because they exist simultaneously, and the more transactions there are on the network, the more decentralised and secure it becomes. The design of proof-of-work blockchains aims to achieve scalability while ensuring security and interoperability to enhance and potentially replace traditional value exchange.



By scaling <a href="https://coingeek.com/proof-of-stake-is-proof-of-misunderstanding/" target="_blank" rel="noopener">proof-of-work</a> to accommodate a higher number of transactions per block, energy consumption is significantly reduced by default. Therefore, the idea that a mere change in consensus mechanism will automatically offer a more sustainable, affordable, and scalable protocol than proof-of-work is simply not true.



<h2 class="wp-block-heading" id="h-the-problem-with-proof-of-stake">The problem with proof-of-stake</h2>



As noted above, proof-of-stake networks such as those promoted by Ethereum are not true blockchains. Instead, they are distributed ledger networks that imitate the structure and processes of genuine blockchains, lacking utility, security, and scalability.



Read: <a href="https://www.bsvblockchain.org/news/blockchain-proof-of-work-vs-proof-of-stake-consensus-models" target="_blank" rel="noopener">Proof-of-work vs proof-of-stake consensus mechanisms</a>



This design includes highly complex mathematical models and algorithms to compensate for the lack of security of the system. These aim to hide centralisation and&nbsp;offer very little except marginal security, since governance of the system is achieved through ‘staking’ or ‘voting’. This consensus model facilitates control by ownership to those who hold the ‘majority’ of staked coins, opening the network to attack and subjective decision-making processes.



In turn, this will almost always lead to some form of an oligopoly, as those with the majority of staked coins make decisions that best serve them &#8211; but not necessarily the ecosystem itself. In a proof-of-stake model, the concept is to continually bring on new nodes to validate transactions, which over time results in a direct increase of electricity, with no end in sight.



Having 50,000 nodes, especially when most of these nodes do not participate in validating&nbsp;transactions or producing blocks, is unnecessary and unsustainable. This model is also inherently fairer than a proof-of-stake consensus model, as new miners join with every block.



Proof-of-stake hardware, that seeks to join the network, will increase the energy consumption of the ledger by several kilowatt-hours and create an even larger carbon footprint due to the additional surrounding infrastructure required.

A misconception about proof-of-work

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