In the last couple of years, much has changed in the gaming and gambling industry. The source of this rapid change is the introduction of the new digital currencies, known as cryptocurrencies, which have impacted far more than only this specific industry. As the internet is full of those new crypto casinos and gambling platforms, it is important to stay informed and read Ethereum Casino Reviews to get an overview of the game before investing your own money.
Whether you are a gamer or not, it is pretty unlikely that you have never heard about those new digital coins. Many people, whether they buy or hold Bitcoins or not, have been already feeling the impact of this new massive industry. As so-called miners all around the world are trying to get the best hardware in order to mine as effectively as possible, shortages of microchips and graphic cards have been seen all over the world. Furthermore, we must say that this is actually the smallest problem of the impact that the mining process has on our planet.
As humankind is dealing with a diverse network of global problems at the same time, it is obvious why technology is in constant search of new solutions to those issues. One of those solutions could be the new Proof of Stake cryptocurrency algorithm, which has been seen to have quite promising implications for the gaming industry and the entire new financial system, which has occurred in the latest years. But what exactly is the big problem of the mining process of Bitcoin and Ethereum? And what is behind the new Proof of Stake algorithm? We have the answers for you!
Before we can talk about the Proof of Stake algorithm (PoS), we have to understand what the general system looks like. Cryptocurrencies like Bitcoin and Ethereum are sustained by the Proof of Work (PoW) algorithm. Miners are supporting the process and the ever-growing blockchain by contributing computational resources to the decentralized network and get rewarded with the creation of new bitcoins.
The creation process of the coins, known as mining, requires large amounts of energy, as coins are the result of complicated computer engineering. To cope with those immense amounts of data the computers use a lot of electricity. And here is where the problem starts. As the market is still an extremely competitive place, the miners often choose the locations with the lowest energy prices to operate. While private users just simply use their own personal computer to mine, big companies have popped up focusing only on mining Bitcoin by building huge warehouses full of computers.
In the past, many of those huge mining firms chose China as the location for their mining plants. Unfortunately, most of the energy consumed by those plants originates from coal which has an extremely negative impact on the environment and is seen as one of the key problems of climate change. The mining plants’ demand for energy is so incredibly high that the computing needed to support Bitcoins underline network now requires nearly as much energy as the entire country of Argentina.
As a result, the carbon footprints of mining Bitcoin and Ethereum are immense. One average Bitcoin transaction has a carbon footprint of around 360 kilograms per transaction. Looking at the environmental impact of other payment methods shows that Visa for instance has a carbon footprint of around 500 milligrams per average transaction. This means that the carbon footprint of a Bitcoin transaction is actually 800.000 times bigger than the carbon footprint of a normal transaction. Even big organizations like Greenpeace started to withdraw their support of Cryptos for that reason.
As Ethereum is rapidly growing while relying on the PoW algorithm to sustain its massive network, many have been raising concerns about the sustainability of those new coins.
A partial solution to this problem could be the Proof of Stake algorithm. The PoS is basically an alternative mechanism that seeks to ‘power’ and sustains a decentralized network while not being in need of the physical and power-intensive mining process.
While the PoW requires, as the name says, Proof of Work, the PoS model allows miners to mine or validate transactions simply based on the number of coins the miner is currently holding in his account. The good thing about it is that everybody earns in the process, as the consensus is distributed amongst all holders of the cryptocurrency.
People who hold lots of coins are getting more of the consensus because everyone earns a flat percentage rate for ‘staking’ or holding coins in their wallets. You may know this concept from the traditional financial systems. The interest is earned by simply having more money on your account, the more you have it exponentially grows. The result is a decentralized network with much less environmental impact.
One big benefit of the PoS is that the mining of premium currency could be distributed to players. If the gamers participate in the network, it will provide validity to the currency’s blockchain and open a way for the developers to sell the cryptocurrency to players directly. The Proof of Stake algorithm could be the way to attract more participants and also give people a reason to rather hold the coins than just using them directly.
Another benefit is that transaction and credit card fees could be reduced by selling directly. If players use cryptos in the game industry, publishers would also pay less in credit card transaction fees to generate revenue. The so-called prime stakers, which are basically the big fish with the massive wallets, could take a very small percentage cut of each transaction resulting in a profit on player-to-player trades. Furthermore, this offers the Prime Stakers and all others to interact even more with the cryptocurrency.
All in all, it can be said that the new PoS algorithm looks promising and seems to offer a big improvement to the still young and immature system of the blockchain.