Bitcoin as the world’s first decentralized blockchain network is still based on the energy-intensive Proof-of-Work (PoW) consensus algorithm consuming as much energy as the entire country of
Last year, another popular and second-largest public blockchain Ethereum officially switched to PoS from PoW. After the most anticipated event "
In this scenario, it is not bad to have a question like " Why can’t Bitcoin?" in our heads. Well, this article attempts to explore technical, economic, political, and social factors associated with the likelihood of switching Bitcoin's consensus algorithm. Hope you might say aH-Ha, at the end😁.
Working Mechanism of Bitcoin Blockchain Network
Bitcoin blockchain introduced Distributed Ledger Technology (DLT), with each block consisting of a batch of verified transactions to form a chain after achieving consensus among the miners. To maintain the security and integrity of the blockchain, the PoW consensus algorithm is employed and the first miner who solves the complex cryptographic hash puzzles broadcasts the new block to the network. Then, other miners validate the block and add it to their copy of the blockchain. So, there is no chance of including malicious transactions in the block. Miners receive rewards in the form of newly minted bitcoins and transaction fees which helps the process to be self-regulating in the decentralized ecosystem with the mining difficulty adjusted periodically to maintain a steady rate of block creation in the network.
Bitcoin uses various cryptographic techniques for security such as public key cryptography for creating and managing BTC addresses (essentially pairs of public and private keys). Cryptographic hashing algorithms like SHA-256 are employed to create a unique hash for each block to ensure immutability.
⬇️PoW vs PoS
Bitcoin’s PoW requires miners to solve complex mathematical puzzles to validate transactions and add new blocks to the blockchain. The selection of miners is based on computational power and energy consumption which leads to concerns about environmental impact and centralization risks.
On the other hand, PoS is based on the amount of cryptocurrency as a stake to validate transactions and create new blocks. The selection of validators or "stakers" are chosen based on their stake, i.e., the amount of cryptocurrency they hold, and their chances of being selected are proportional to their stake.
⬇️Challenges of Transitioning Bitcoin to PoS
Based on the currently available technologies and resources, transitioning Bitcoin to PoS would be an extremely challenging and complex task. While it is theoretically possible to modify the consensus algorithm, the practical feasibility of such a switch has been a highly debated topic within the Bitcoin community.
Here are some key points to consider:
Technical Considerations
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👉🏿Technical Feasibility: Bitcoin is the largest public blockchain network and work done by its algorithm is almost impossible to reverse as it requires a tremendous amount of computing power. This is how it forms an immutable record of data on the blockchain which is permanent. Now, let’s imagine how hard it would be to shift a gargantuan amount of data from the current chain to a new one that operates on the PoS of Bitcoin.
In addition, switching Bitcoin's consensus algorithm would require vast modifications to the protocol's core codebase which includes rewriting the consensus rules, transaction validation mechanisms, block creation processes, and other fundamental components in the network.
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👉🏿Network Security and Stability: Bitcoin's security model is heavily based on the computational work performed by miners and strong encryption. So, the network’s PoS shifting would introduce a different security model essentially, relying on economic stake. The feasibility of a consensus algorithm switch depends on ensuring an equivalent or higher level of security, resistance against attacks or vulnerabilities like the "Nothing at Stake"problem, or validation power concentration to the bigger whales, and maintaining the stability of the network during and after the transition.
Economic Considerations
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👉🏿Stakeholder Consensus: Obtaining a board consensus on the benefits, risks, and implementation details of a new algorithm among various stakeholders (that includes miners, developers, businesses, and users), is very important because they are an integral part of the network’s ecosystem. But, the significant challenge to gaining consensus among the Bitcoin miners is still persisting as the switching to PoS could devalue the Bitcoin mining equipment as ASIC miners are designed to operate on the specific hashing algorithm that requires a tremendous amount of computing power so. They would not have other feasible mining alternatives to avoid Bitcoin mining.
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👉🏿Economic Implications: PoS introduces a different economic model compared to PoW. It requires stakers to hold and lock a certain amount of Bitcoin to participate in the block validation and creation process. Assessing the economic feasibility involves considering factors such as the distribution of stakes, incentives for participation, and potential effects on the ecosystem, including miners and other market participants.
Social and Governance Considerations
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👉🏿Community Acceptance: The Bitcoin community has traditionally been cautious about major protocol changes, valuing stability and immutability. Theoretically, it could be remotely done as more than 50% of community members including the Bitcoin miners should agree to make the changes but the biggest challenge is that miners would not entertain this move because some miners have invested a huge amount of money into mining farms. Even by searching the alternative energy sources, it would be a very hard time for them to leave mining farms without the proper other options. If some changes are made in the network, it may just result in another Bitcoin fork because existing miners may not upgrade the mining software to the latest one. A vivid example can be the risk of another Ethereum hard fork following Ethereum’s Merge.
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👉🏿Network Coordination: Coordinating a consensus algorithm switch requires effective governance structures and mechanisms. The main question is, “Who should do this?” since Bitcoin is still the biggest public blockchain network. If we locate the switching progress of Ethereum from PoW to PoS, it will face so many obstacles, and still, challenges persist.
Ethereum, while the remaining open source and the second-largest public blockchain, possesses a semblance of organizational structure. This because the Ethereum Foundation, led by renowned co-founder Vitalik Buterin, plays a crucial role in making important decisions for the network (such as the implementation of significant updates like the Merge). It is interesting to note, Ethereum Foundation's actual control over the network is limited but its influence is substantial enough to drive important changes.
In contrast, Bitcoin lacks a substantial leadership structure. The
Bitcoin Foundation faced insolvency in 2015 which left the Bitcoin community without a unified governing body. There is a small dedicated team of developers known as maintainers who oversee the updates to the Bitcoin code. These maintainers are financially backed by various entities like Blockstream, a Bitcoin startup, Coinbase, and the MIT Digital Currency Initiative hosted by the MIT Media Lab. However, maintainers alone cannot make Bitcoin’s transition to PoS. They need the support and consensus of Bitcoin miners. Even if the maintainers were to propose a transition to a PoS consensus mechanism, it is unlikely that the miners would simply abandon the current PoW branch and embrace the new PoS branch as the true Bitcoin. Such a shift would require widespread support and acceptance from the mining community which may be crucial to make such an important change. Consequently, if a PoS branch were to be introduced without consensus, it would likely be viewed as just another “Shitcoin” rather than being recognized as the legitimate Bitcoin.
⬇️Past Attempts to Change Protocols: The Lessons that We Should Learn
Bitcoin Cash (BCH) serves as an important lesson that the Bitcoin community should strive for consensus and avoid significant disagreements that may result in a contentious hard fork. BCH emerged as a result of a contentious
⬇️The PoS consensus algorithm has its own limitations
Well, here is the crux of the matter of why gaining consensus among the Bitcoin community is extremely complicated to transit from PoW to PoS. Ethereum is the smart contract-enabled blockchain which means it supports a wide range of applications such as DeFi products and services so, the transition from PoW to PoS for Ethereum looks reasonable. But in the case of Bitcoin, it just needs to process the transactions within the Bitcoin network by using PoW and its algorithm is the key for decentralization and overall network security. PoS networks often raise concerns regarding the degree of centralization and its potential implications for network security. Several PoS-based protocols breach and outages __caused by major DDoSattacks __on the popular PoS-based Solana blockchain have significantly raised concerns regarding the security and integrity of the PoS consensus algorithm.
⬇️So, what the next? Is it the end of hope?
Of course, not. Who knows the future? Here is no place for the “Impossible” but the fact is, switching Bitcoin to PoS may be deemed as an inevitable progression. Even if all Bitcoin is mined to reduce mining reward or increase the transaction costs, the community might re-think having upgraded PoS-like layer 2 Lightning network solutions.
Regardless, the Bitcoin community is not inclined to make the drastic change to their blockchain unless compelled to do so. The progress of Ethereum's PoS experiment is being closely observed by many and its outcomes would influence the future trajectory of the entire blockchain ecosystem.
Conclusion
By analyzing several factors (such as technical, economic, political, and social factors) and available resources associated with the likelihood of switching Bitcoin's consensus algorithm, it is concluded that the transition of Bitcoin to PoS is unlikely to happen in the near future. But, based on the pace of technology and the majority consensus to change Bitcoin’s algorithm among the Bitcoin community, everything is possible in the future to fulfill the majority of demands. In addition, developers and experts in the related field are continuously striving to find the best possible solutions to solve the scalability and over-energy consumption issue of the biggest public blockchain Bitcoin. So, just not sticking to the PoS consensus algorithm, let’s hope there will be an advanced, highly secure, and truly decentralized consensus algorithm for Bitcoin in the future.