Similar to how a car engine makes the car drive, and different engines make the car more or less efficient, the same could be illustrated for cryptocurrencies. A cryptocurrency’s engine is its consensus protocol. A cryptocurrency’s blockchain is distributed, meaning there is no single entity that controls the network. Instead, it is spread across nodes who verify transactions. Consensus protocols make sure every node is in consensus (i.e. agreement) and that the information on the blockchain ledger is correct.
Here, we are going to take a fresh look at consensus protocols with our sustainability hats on!
There are two most common types of consensus protocols, proof of work (PoW) made famous by Bitcoin, and proof of stake (PoS) made famous by Cardano’s Ouroboros. A consensus protocol has a few main functions; selecting a block producer, validating the block is correct, and rewarding the block producer. The biggest difference between PoW with Bitcoin and PoS with Cardano is how the block producer is selected.
PoW is based on a physical resource, which requires hardware machines such as ASIC. PoW validators (i.e. miners) use hashing power from the hardware devices to solve a computational puzzle. This act of using the machines is called “mining”. PoW miners are in a race to solve the puzzle, whoever figures it out first wins the right to produce the block. The miners with more hardware have more power, resulting in a greater probability of creating the next block.
PoS is based on a virtual resource. Cardano uses their native token, ADA, to assign which stake pool gets to produce the blocks in the blockchain. Each ada is equivalent to a lottery ticket. If your stake pool is chosen you are selected to create the block. Ada holders can participate by delegating their ada to stake pools to increase the probability of being selected. In return, delegators earn a portion of the rewards.
In Bitcoin’s and other proof of work protocols, 99% of the energy consumption is used to just select a block producer. Cardano uses a proof of stake protocol, much more energy efficient. In comparison, Cardano uses only six gigawatt-hours of energy annually compared to 115.85 terawatt-hours used by Bitcoin.
- Cardano: 6 gigawatts = ~2 average power plants
- Bitcoin: 115,850 gigawatts = Rank 31st in country’s energy consumption, surpassing the Netherlands.
So, as we can see, Cardano is many times more energy-efficient than Bitcoin. But two power plants’ worth of power is still a lot, right? Well, not particularly - especially as this doesn’t take into account our SPOs who use renewable energy; and considering the power required to mine, process, and produce raw materials for physical fiat cash!
The blocks in the blockchain are a ledger of the transactions and who has what. If the protocol fails, the ledger can be manipulated. This can have catastrophic consequences that result in people losing funds and taking over the network. Because of the severity of those consequences, the consensus protocol must have the highest level of security.
Bitcoin is one of the most secure protocols but what makes it incredibly secure is the physical resources and energy consumption required to take over the network. To distort and manipulate the blockchain, an attacker requires having the majority control of the hashing power. Security comes at a cost and the energy consumption will increase over time as the Bitcoin network grows.
But what if you can have your cake and eat it too? Use a fraction of the energy consumption with the same level of security.
Cardano provides the same high level of security as Bitcoin but uses its native token, ADA for consensus rather than hashing power from mining equipment. To distort Cardano’s network you would need to control the majority ada. Below is a calculation of the amount of money required to have majority control of Cardano’s network.
- 31,948,309,441 ADA – Circulating supply
- 16,293,637,815 ADA – 51% of the circulating supply
- US$1.60 – Current price of ADA
- US$26,069,820,504 – Amount of dollars to control 51% of ADA at the current price.
For an attacker to control 51% of the network it will cost over US$26 billion not factoring in the price appreciation that will occur with a buyer trying to purchase that much ada. Moreover, as the network grows and the value of ada appreciates, the cost to attack the network becomes more expensive but the cost to secure the network is relatively unchanged.
In addition, Cardano’s protocol goes through a rigorous peer-reviewed process and goes through the same high insurance code techniques that are used by developers to build jet engines and NASA where failure in the code results in catastrophic events like the Ethereum DAO hack.
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