The proof-of-work mechanism of blockchains is a key characteristic that contributes to its decentralised nature. However, proof-of-work protocols on distributed ledger technology like Bitcoin reduce the platform’s scalability and cause mining to consume extremely large amounts of electrical energy. The electrical consumption used by Bitcoin miners is found to be greater than that of entire countries.
Etheruem, the second-highest cryptocurrency in the market, is currently working on developing Ethereum 2.0. It plans on addressing issues in scalability, interoperability and functionality and will also employ an alternative mechanism called proof-of-stake, which is meant to be better than proof-of-work in terms of speed and energy consumption.
Financial regimes in the US and around the world have been found to be extremely cautious when dealing with blockchain technology and cryptocurrency due to their innovative nature and the unique roles they play in financial systems within and across countries. The Proof Of Stake Alliance (POSA) was recently launched with the aim of educating policymakers and regulators on the nuances of crypto technology and crypto markets. The group comprises of industry insiders and lawyers, and they wish to mainly focus on explaining the fundamental differences between proof-of-work and proof-of-stake protocols.
Ideally, they will be able to successfully lobby Congress and regulatory agencies within the United States, convincing them that blockchains should be treated differently. The government’s understanding of proof-of-stake mechanisms will play a crucial role in determining Ethereum 2.0’s future and scope.
Founding board member of POSA, Ryón Nixon, spoke to Decrypt and stated:
“Stakable assets have unique legal, regulatory and tax issues, which—given the number of protocols utilizing this consensus mechanism—must be addressed sooner rather than later,”
If POSA is successful, they will be able to bring clarity within cryptocurrency governance and regulations, and will also promote the growth of proof-of-stake networks.