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Answering Vitalik Buterin’s 7 Hard Questions For the Blockchain World Part 5: Proof of Waste

Ethereum co-founder Vitalik Buterin put forward a series of open questions to the cryptocurrency community in a recent discussion with Mars Finance International WeChat group, postulating seven issues present within the blockchain ecosystem.

Buterin’s “hard questions for any blockchain people” deal with some of the biggest obstacles that stand between the current state of blockchain technology and widespread adoption, highlighting hashpower centralization, the lack of “useful” large-scale apps, the high frequency of hacks, scalability and latency, issues with consensus methods, and the inefficiency of on-chain governance.

Previously in this series, we answered Buterin’s questions on hashpower centralization, securities issues, dApps latency, and scalability.

In this multi-part series, we will attempt to answer each of Buterin’s 7 questions.

Is PoW Wasting Money?

“PoW is burning billions of dollars per year, even more than all scams and thefts combined. Isn’t this a big tragedy?”

Blockchain networks use a wide variety of methods to gain consensus on the current state of a distributed ledger. There are many different types of consensus methods, from relatively simple ones such as Proof of work (PoW) or Proof of Stake to more complex methods such as Delegated Byzantine Fault Tolerance or the Tangle. Of all the different consensus methods, PoW consumes the most energy and therefore consumes the most value — or money.

Bitcoin, the most valuable and widely used cryptocurrency, uses PoW to secure the Bitcoin blockchain and ensure consensus is reached. PoW is relatively simple in theory — network participants that validate blocks in the Bitcoin blockchain are required to demonstrate that they have invested a significant amount of work in order to keep them honest.

In the case of Bitcoin, this “work” is executed in the form of solving complex mathematical problems that consume a large amount of computational power. The expenditure of large amounts of computational power requires a significant amount of energy and represents a substantial financial investment. In addition to keeping network participants economically disincentivized from acting in a malicious manner, PoW also makes it difficult for malicious parties to attack the Bitcoin network.

While the PoW consensus method is an effective solution for gaining consensus and keeping a blockchain network secure, it does have one major drawback — it’s extremely costly. Mining Bitcoin is deliberately consumptive — data available from the Bitcoin Energy Consumption Index reveals the vast amount of energy directed toward Bitcoin mining:

  • Bitcoin consumes 73.12 TWh annually — studies performed by Economist Alex de Vries demonstrated that Bitcoin mining will consume 0.5% of the world’s total energy consumption by the end of 2018
  • Bitcoin currently consumes 0.33% of world energy consumption
  • Bitcoin mining currently consumes as much energy as the entire population of Austria
  • A single Bitcoin transaction could power 30 US households for one day

The Problem with Proof of Work

While PoW does consume vast amounts of power, it’s arguable that using energy to establish a decentralized, public, secure, wholly independent, and incorruptible method of transferring value between individuals outside of the centralized institutional financial power structure is justified.

PoW serves to attach a cost to mining to prevent networks that use it as a consensus method from being compromised. Within the current blockchain paradigm, PoW is — and has been — essential to the proliferation of cryptocurrencies around the world.

Outside of the sheer scale of energy directed toward PoW consensus methods, however, there are a number of other issues generated by PoW. Consensus methods such as PoW that require intense computation will inevitably lead to the development of specialized hardware, which disincentivizes individual operators and encourages the pooling of resources which, in turn, leads to monopolization — an issue highlighted by Buterin in his first “hard question for the blockchain world.

It’s true that PoW does “waste” money in the form of energy, but it’s inaccurate to label the effort exerted by miners operating in PoW networks as “wasted,” as the act of mining creates value in the form of cryptocurrencies — fungible assets that can be exchanged for fiat currency, or directly for goods and services.

Bitcoin, or any other PoW cryptocurrency, is subject to the first law of thermodynamics — energy can neither be created nor destroyed; energy can only be transferred or changed from one form to another.


You can find all the answers for our “Answering Vitalik Buterin’s 7 Hard Questions For the Blockchain World” series here:

Cover Photo by Morgan Aragon on Unsplash

Posted In: Adoption, Technology

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Sam Town
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Sam Town

Samuel is a freelance journalist, digital nomad, and crypto enthusiast based out of Bangkok, Thailand. As an avid observer of the rapidly evolving blockchain ecosystem he specializes in the FinTech sector, and when not writing explores the technological landscape of Southeast Asia.

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