With Ethereum’s recent transition from a proof-of-work to proof-of-stake model, known as “the Merge”, many cryptocurrency enthusiasts are weighing in on what it means for the industry as whole.
Advocates are praising the move, pointing to the fact that it will reduce Ethereum’s energy consumption by more than 99 percent – something the crypto mining industry continues to be criticized for. Opponents are arguing that it could lead to the blockchain becoming more centralized and less secure.
Kyle Sidles, CEO of Minecheck, a proprietary software solution for miners, thinks there is a place in the industry for both models to operate. “I don’t think they’re mutually exclusive,” he said. “I don’t think it’s one or the other, I think that there is room for both.”
As a bitcoin maximalist who has mined bitcoin since its infancy, however, Sidles tends to favor the proof-of-work model. “As a miner, I’m disappointed that Ethereum moved away from proof-of-work,” he said. “But is it the end of the world? No, it’s a shift in direction and time will tell whether it’s a good shift or a negative shift.”
Part of Sidle’s appreciation for proof-of-work is the level of transparency and security it brings to the network. “There’s a lot more real world physical tie to what is going on in proof-of-work, as miners that are building data centers are not only having to put capital into building the data centers, but are also being required to burn energy in order to continue to support the network,” he said. “Proof-of-stake requires nothing other than some capital, meaning that it’s relatively easy to change the dynamics of the network without the rest of the participants even knowing that it happened.”
While he acknowledges that mining requires a significant amount of energy consumption, Sidles challenges opponents to consider the amount of electricity used daily in our traditional finance system. In fact, a research report from Galaxy Digital found that the bitcoin network uses less than half of the energy consumed by both the banking and gold industries.
“People who are negative toward bitcoin are conveniently leaving out the fact that there are other things in our society that are even more wasteful,” said Sidles. “All of the news and hype out there is making it seem like everybody’s in agreement that bitcoin mining is wasteful, but there’s a good portion of the industry that doesn’t share that same sentiment.”
Sidles points to the large influx of money pouring into the mining industry. “There’s another side to this story, which is that there is a big group of people that are bigger proponents of proof-of-work than proof-of-stake,” he said. “That’s evident by the hundreds, if not billions, of dollars going into infrastructure and hardware by well capitalized groups that are not going to take such a big bet on something without having a belief that it’s going to win out in the end.”
Indeed, Sidles believes bitcoin is still king, and will likely stay that way. “Bitcoin is still by far in the lead position and so far Ethereum’s switch to proof-of-stake really hasn’t changed anything in the market,” he said. “It’s possible that proof-of-work continues to be the dominant force and the proof-of-stake element of Ethereum is another chain doing smart contracts,” he said.
He added: “It’s serving a slightly different purpose than bitcoin, but bitcoin is there chugging along like it has been for the last 15 years essentially operating how it was originally intended to operate.”