Introduction: What is Cryptocurrency?

Proposed Benefits of Cryptocurrency

Environmental Impact of Cryptocurrency

Consensus Algorithms

Consensus Algorithms are the basic underpinning of cryptocurrency. They allow users to agree on who owns the currency without a centralized authority or physical token dictating ownership.

The consensus algorithms used by the two largest cryptocurrencies (Bitcoin and Ethereum) are Proof of Work and Proof of Stake. Here we will detail how they work, why they ensure cryptocurrencies can be secure, and how they impact the environment.

Proof of Work

The essence of Proof of Work involves users, known as miners, competing to solve cryptographic puzzles in order to verify ledgers of transactions. The user who solves the puzzle first is awarded newly minted Bitcoin.

The puzzles themselves involve taking the ledgers with a number appended to the end and applying a hashing algorithm, such as SHA256, to it. For those who don't know, a hashing algorithm is one of the most fundamental tools in cryptology. It takes an input string of any length and outputs a fixed length binary string. Furthermore, hashing algorithms have the following properties: The same input will always map to the same output, small changes in the input will have drastic changes in the output, and the security of the operation comes from the fact that you can't compute the inverse efficiently. In other words, given an output, you can't compute the input without checking every possible input until you get a match.

Going back to the cryptographic puzzles of Proof of Work, a ledger and number are combined and hashed. If the 30 leading numbers of the binary output is zero, then the number used is a winning candidate. The probability of finding the right input number is $ \frac{1}{2^{30}} $, equating to almost 1 in a billion. Once a winning number is found, it's broadcasted to the network and verified by other users.

Environmental Impact

The "work" portion in proof of work is the billions of hashing operations that miners are computing to find the winning number. The most popular hardware used by miners to rapidly perform these hashing operations are known as Graphical Processing Units, or GPUs for short. While these specialized processors are intended for graphical computations, their significantly lower cost compared to Application Specific Integrated Circuits (ASICs) makes them the ideal choice for miners who want to quickly recieve a return of investment. Unfortunately, compared to ASICs, GPUs consume substatially more energy to operate. The most popular mining GPU, the Nvidia RTX 3090, consumes 450W when pushed to its limits. <bold>TODO ADD STATISTICS ABOUT HOW MANY MINERS AND GPUS THERE ARE</bold>

Security of Proof of Work Algorithms

The largest threat to a decentralized network is malicious actors falisfying information to furthur their own interests. One of the benefits of Proof of Work is that in order to falsify information on the Blockchain, you'd need have control of 51% of the total computational power on the entire network. In the early days when the blockchain was small, this feat could potentially be achieved. Today, the sheer number of miners and the inconceivable size of the blockchain makes this an impossible feat to acomplish. Due to this mechanism, Proof of Work remains as the most secure consensus algorithm.

Proof of Stake

Environmental Impact

Security of Proof of Stake Algorithms

Tradeoffs of Proof of Work vs. Proof of Stake

Security Tradeoffs

Different Environmental Impacts

Be sure to have data here on Ethereum energy usage before and after the switch to proof of Stake.

Regulatory Issues

Conclusion

Sources

$ \sqrt{2} $ How to type math https://katex.org/docs/supported.html

Sources

https://ethereum.org/en/developers/docs/consensus-mechanisms/pow/
Information on how proof of work works.

https://ethereum.org/en/developers/docs/consensus-mechanisms/pow/mining/
Information on why mining is important for cryptocurrencies.

https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/
Information on how proof of stake works.

https://www.coinbase.com/learn/crypto-basics/what-is-proof-of-work-or-proof-of-stake
Information on the difference between PoW & PoS

https://bitcoin.org/bitcoin.pdf
Bitcoin whitepaper that started it all
https://time.com/nextadvisor/investing/cryptocurrency/proof-of-work-vs-proof-of-stake/