As reported by Financial Times, the Chief Executive, Billionaire and Founder of the famous cryptocurrency exchange, FTX, Sam Bankman-Fried, has said that Bitcoin- a proof-of-work network- has no future as a payments network because of its inefficiency and high energy costs.
The world’s most popular and largest cryptocurrency, Bitcoin, launched on the proof-of-work mechanism, is a highly energy-intensive network. Bitcoin’s proof-of-work mechanism requires several nodes of computers to “mine” the currency using large amounts of electricity to solve complex cryptographic puzzles.
Proof-of-Work Vs Proof-of-Stake
The proof-of-work mechanism is a decentralized consensus mechanism requiring its members to use large effort and energy to solve an arbitrary mathematical puzzle to validate transactions on the block. Proof of work requires huge amounts of energy to validate transactions and mine new tokens, increasing as more miners join the network.
Bankman-Fried said to FT that “he didn’t believe Bitcoin can survive as a cryptocurrency for payment, but it can still survive as “an asset, a commodity and a store of value” just like gold.”
He said the next largest mechanism, Proof-of-Stake, in which Ethereum was launched, has to evolve as a payment network as they are cheaper, faster and less energy-consuming.
The Proof-of-stake network is a consensus mechanism where participants can only be allowed to process transactions and create new blocks in a blockchain only if they hold the blockchain domestic token. For example, the second-largest cryptocurrency, Ethereum, launched on the Proof-of-stake mechanism, can only allow participants holding Ether to validate block transactions. Proof-of-stake reduces the amount of computational power needed to verify blocks and transactions and thus uses less energy than proof-of-work mechanisms.
The volatility of Bitcoin scares traders in obtaining or receiving it as a means of payment. Bitcoin touched its lowest price ever in December 2020, when TerraUSD, a Stablecoin it was pegged to, broke its 1:1 ratio to the dollar. Recently, the stability mechanism of Bitcoin, which involved balancing with a cryptocurrency called Luna, stopped working when Luna dipped close to zero. This made Bitcoin fall to $20k last week. The worries and losses due to the high inflation and rising interest rates surely derailed its investors, with many people avoiding its network for payments.
