The invention of Bitcoin marks a pivotal moment in the history of finance. Through its decentralized issuing mechanism, mining, Bitcoin was able to return financial freedom to users, ensuring that no transaction can be censored or reversed by third parties.

Moreover, Bitcoin has put currency issuing itself in the hands of the people, rather than in a centralized entity. This has allowed Bitcoin to thrive as a global, apollitical currency and store of value, impervious to outside factors that would otherwise undermine its value and efficiency.

Mining isn’t all good, though

However, as it is common with technology, when one problem is solved, another one arises from the solution. This is the case with Bitcoin mining, a once harmless practice that could be performed from any regular desktop computer. Today it’s a billion dollar industry with an estimated consumption of 288 megawatts, according to data from the Global Cryptocurrency Benchmarking Study by the Cambridge Judge Business School.

The continued growth of cryptocurrency mining is not only affecting our environment, it is also harming cryptocurrencies themselves by promoting centralization and industrialization. Regular users cannot hope to become miners themselves without a large investment, specialized facilities and hardware, and a considerable degree of technical knowledge and experience.

To put it simply, Bitcoin’s currency issuing process is no longer in the hands of the many, but is instead reserved for a few key players. These mammoth miners keep all the incentives and have all of the power over the network.

So, what should we do? Proof of Work mining is viewed by some as an indispensable part of the cryptocurrency ecosystem, acting as the “only” foolproof anti-Sybil mechanism that can keep networks such as Bitcoin safe. Other will argue that alternative methods can achieve the same, if not better results, without the need to give up security or decentralization in the process.

Today, we are going to take a look at some of the most and least popular alternatives to digital currency mining. Some of these can help reduce or end the centralization of Bitcoin mining and the environmental devastation that is being left in its wake. We are going to talk about alternative energy sources, new consensus mechanisms and innovative implementations of Proof of Work.

Renewable energy

In 2016, BBC revealed that 70% of the Bitcoin hashrate was located in China. Unfortunately, the vast majority of electricity in the country is produced by burning coal, resulting in one of the biggest carbon footprints in the world. Despite recent efforts by the Chinese government to halt coal power projects, the “dirty black rock” is still being burned throughout the country. From industrial boilers to home stoves, coal generates more than 75% of the nation’s electricity.

It has become clear that as long as mining remains profitable, more mining computers will come online, consuming even more power. The long-term solution may lie not with alternative mining/issuing methods but with the source of electricity itself.

As electricity requirements continue to grow for miners, it is likely that miners will start turning towards renewable energy sources. HydroMiner, for example, is a cryptocurrency mining company using hydropower stations in the Alps region to power its mining operations. Known as one of the most effective and cleanest sources of energy, the electricity that is generated from hydropower emits just about 5-10% of the CO2 released by conventional fossil fuel power.

By using hydropower, the company pays less for electricity. As a matter of fact, the company’s cost of electricity is actually 85% lower than the Europe’s average price – making it competitive with China.

Since wind and solar power do not produce a steady supply of energy, hydropower seems to be the most suitable power supply for digital currency mining. Hydropower generates a vast amount of electricity without relying significantly on climatic conditions, air current flow, and complex start-up processes. Operating and maintenance costs are typically low, as these procedures are almost fully automated and require no fuel.

Proof of Stake

Proof of Work is not the only way to do run a digital currency. An alternate consensus mechanism, called Proof of Stake (PoS), relies on a process called “forging.” Each user can “stake” his currency and have a chance to be selected to forge a block and earn more currency. Those who own more currency receive more chances to forge blocks.

The concept is simple: the more coins you have, the more coins you’ll earn. In its application, however, Proof of Stake is much more complicated and comes in several variations.

While opinions on these matter vary, it’s hard to ignore the advantages provided by Proof of Stake mining, the most relevant of which being the lower energy consumption. PoS also allows anyone to participate in the network without any special hardware or technical knowledge, given that all that is needed is to leave one’s digital currency wallet/node running.

In terms of security, Proof of Stake also offers some less-than-obvious advantages. For example, a Proof of Work miner must invest in hardware in order to mine coins. This  would normally mean that he has a vested interest in the well-being and success of the network. However, the current cryptocurrency landscape allows miners to use their equipment profitably on other coins, especially when dealing with GPU mining.

Proof of Stake, on the other hand, requires the user to purchase coins in order to participate in the network, ensuring that his mining power cannot be used elsewhere. In terms of security, this prevents certain attacks, given that the demise or disruption of the cryptocurrency at hand would result in a loss of investment for the malicious actor.

In the world of Proof of Stake, several different implementations have been created. The Waves Platform, for example, uses a Leased Proof of Stake system in which miners can “lease” their tokens to full nodes in order to generate revenue without having to host their own nodes. A similar approach is used by DPoS cryptocurrencies who vote on delegates to generate blocks and vote on important decisions.

Systems similar to those applied in Proof of Work cryptocurrencies can also be implemented through the use of Smart Contracts.

Smart Contracts

Another viable alternative is mining through the use of smart contracts for Ethereum-based (ERC-20) tokens. This system is obviously dependent on the security on the Ethereum Blockchain which, at the moment, is provided by a wide network of Proof of Work miners. Future plans will see Ethereum move to a PoS system.

Minereum, for example, is an Ethereum-based token that uses a system of smart contracts to issue and distribute tokens without having to adopt any “proof” system. Their announcement reads:

“Minereum is the first ever self mining Smart Contract Token. Coins are generated on the fly with a mathematical formula.”

Despite being extremely attractive, this practice it is still dependent on the integrity of the Ethereum Blockchain, which itself runs on a Proof of Work system. Nonetheless, it is a notable step towards a more sustainable mining industry where utility tokens can have complex issuing schedules without having to resort to their own independent Blockchain and the associated energy costs.

Delayed Proof of Work

Delayed Proof of Work (DPoW) is a fairly new concept in the world of cryptocurrency mining. DPoW allows any cryptocurrency to be as secure as Bitcoin itself without the need to have a large network of miners protecting it.

Delayed Proof of Work relies on a secondary network of notary nodes in order to provide this improved security mechanism. Notary nodes take the block hashes from a currency’s Blockchain and insert them into the Bitcoin Blockchain by making transactions. At the same time, the information about previous blocks stored on the Bitcoin Blockchain is constantly checked by nodes in order to ensure the the currency’s network.

By stamping the block hashes from “weaker” cryptocurrencies on the Bitcoin Blockchain, these become resistant to previously-open attack vectors where a malicious actor with large amounts of hashing power could disrupt the network by “rewriting” the information on it. By timestamping the block hashes on the Bitcoin Blockchain, they become as immutable as Bitcoin itself and allow the notary nodes to identify the attack attempt.

Although mining on these chains occurs through Proof of Work, it’s done through an on-demand block generation process. Another concept put forward by DPoW developer “Jl777,” on-demand block generation, ensures that blocks are only mined when a transaction needs to be processed. This reduces the computational power sent by miners and the storage requirements for nodes. Polycryptoblog, who works with Jl777, explains:

“On-demand block generation saves energy on its own Blockchain whereas dPoW makes the Bitcoin Blockchain more energy efficient.  When a transaction is detected in the mempool the mining process starts.  This saves energy on many fronts, CPU cores sit idle when they aren't mining, comparable to proof of stake.  This also leads to smaller Blockchain sizes due lack of empty blocks being mined, which leads to less syncing time and saving on space and electricity in the process.”

Useful Proof of Work

Some would argue that Bitcoin’s Proof of Work is still useful given that it protects the network. However, when we say useful we mean recyclable. If we can leverage the energy being wasted on Proof of Work for other computational-heavy services, then we’re no longer wasting it.

This is a concept that has been explored in the past by projects like Gridcoin and FoldCoin. By adding an incentive layer in the form of cryptocurrencies, these projects allow users to “mine” coins while contributing to good causes such as medical research and climate studies. This can be seen as one of the first instances of useful PoW.

Another currency uses “Useful Work” system in which computational power is replaced by storage space. Their white paper reads:

“We propose a useful work consensus protocol, where the probability that the network elects a miner to create a new block (we refer to this as the voting power of the miner) is proportional to their storage currently in use in relation to the rest of the network. We design the Filecoin protocol such that miners would rather invest in storage than in computing power to parallelize the mining computation. Miners offer storage and reuse the computation for proof that data is being stored to participate in the consensus.”

Conclusion

We usually like to wrap articles like these in a nice little package where we draw some sort of conclusion or solution from the analysis conducted. However, the truth is that we don’t really know what the future holds. When Satoshi Nakamoto wrote the Bitcoin whitepaper he did not envision ASIC miners or mining pools, and he certainly did not envision a 288 megawatt mining industry.

Nevertheless, if necessity is the mother of invention, the solutions listed above indicate a clear need for an alternative to the current norm. Weather it’s the green energy sources being explored by HydroMiner, a Proof of Stake implementation, or something else entirely, one thing is certain: the current scenario is not sustainable.