Blockchain is why we’re here trading cryptos. It’s the technological breakthrough that makes crypto possible. The concept is simple: a decentralized ledger that can record transactions without anybody having to be in charge, and everyone can see what’s happening at any time.
You can think of it like transparent, democratic banking.
And that’s great, but let’s get real here: no technology is ever so good it can’t be improved.
In blockchain’s case, there’s one big problem in particular that I can see staring us in the face, and it’s called proof-of-work, or PoW. It’s how new transactions are validated on the chain and how new Bitcoins are minted – it’s why you can’t spend the same Bitcoin twice.
It’s a problem that both Bitcoin and Ethereum have. It means that updating the blockchain is done by, essentially, armies of specialized computers. This army uses more energy than the entire country of Argentina to solve big math problems.
Don’t get me wrong, the decentralized ledger is a work of genius, but the first takes on a new piece of tech are almost never the best ones. Some people would call PoW a massive waste of energy and microchips – two commodities making headlines right now because we don’t have enough of them.
Any idea that lets us use less is going to prove extremely valuable in the long run. Let me show you how…
A Cleaner, Better Alternative to Mining
Here to address the problem of too much carbon and not enough silicon is proof of stake, or PoS, the next-gen cryptocurrency validation system.
See, the whole point of PoW is that mining cryptocurrency cannot be free. You need to expend effort to ensure that the digital currencies are scarce, valuable, and there are rules for how much each miner gets.
So, in PoS validation, the miners need to put up something – stake something – for this whole process to work. PoS is a simple way to do that while cutting out the middleman. Instead of spending money to buy specialized computers and electricity, the stakers just invest the money up front. Newly mined coins are distributed out based on how much each investor has staked.
It’s easy – it’s much cleaner, much simpler, and more efficient than the alternative.
Instead of proving that you’re serious by running massive expensive computers around the clock, you just prove you’re serious by owning lots of the asset.
The Blockchains Are Evolving
Now, it’s been big news lately that Ethereum is planning on making the switch to PoS as part of an upgrade that’s being called “The Merge.”
It’s great to see, since this way of handling crypto is a lot less likely to run into problems from chip shortages or rising energy prices. In the future, I think most competitive cryptocurrencies are going to have to use this system. Bitcoin will always be Bitcoin, the bottom brick in the house of crypto.
Everybody else, though, had better get with the times.
And I see Cardano (ADA), my favorite PoS crypto, as the heavyweight champ of keeping up with the times.
“Better than Ethereum” is the entire premise of Cardano, and It’s got a good chance of making it because of Charles Hoskinson, for one. Hoskinson was part of the original Ethereum team who left to try and do one better during most of the decade between Bitcoin’s launch in 2008 and Cardano’s in 2015.
That’s why I like Cardano so much. Learning from mistakes is great. Learning from other people’s mistakes is excellent. That’s why Cardano doesn’t need a proof-of-stake upgrade. The concept was built into the basic concept of Cardano from Day 1.
It’s also doing PoS consensus better with a little innovation called “staking pools”
These smaller subgroups track individual stakers, and can operate as nodes when verifying consensus on the blockchain. That means that transactions can be verified more quickly and efficiently. The more people use these cryptos, the more important that’s going to be, and the bigger an advantage the newer platform that had to make fewer of its own mistakes will have.
And, of course, Cardano is cheaper to use too. The more these networks scale up, and the more people use them, the bigger a factor that will be. It also means that using Cardano costs less.
Now, Ethereum is not planning to give up its elite status without a fight. That even means it’s planning to switch to proof-of-stake itself. Good luck to them. May the better blockchain win. In both cases, we’ll have better platforms to use.
Personally, though, my money’s on Cardano – literally.