So what is even is Proof of Work (PoW)?
From Wikipedia:
"Proof of work is a form of cryptographic proof in which one party (the
prover) proves to others (the verifiers) that a certain amount of a specific
computational effort has been expended."
So by definition, PoW is cryptographic verification of wasted resources?
Well, it depends...
Anubis has grown to fame in the last year or so due to the increased amount of spam crawling of website endpoints. Previously this spam originated from a select few IP addresses and a properly configured firewall, or proxy could rate limit them.
However today with the use of IPv6, and also the increased use of AI to crawl website endpoints more effectively, PoW has been deployed by many organisations to attempt to deter such crawling.
The idea is simple, make each client complete a proof of work, to waste CPU time (therefore electricity, and therefore money) in order to gain access to the website, and a token is stored within the cookie to identify that the client has completed a PoW recently (prevents you needing to complete a PoW every time you reload the webpage).
The effectiveness? No clue. However as someone who uses an old laptop, having my laptop freeze everytime I see an anubis popup where it pegs my CPU for a good 10 seconds is not a fun experience, nor do I want to waste money (even if its a fraction of a penny) to load a website. Its not a solution, its just externalising the problem on your userbase.
In conclusion, I would agree that for proxies, PoW is a waste of finite resources, that being, your time and electricity.
Moving onto the more contentious issue, cryptocurrencies.
Economists across the political spectrum have long argued whether a cryptocurrency is a real currency, or whether its useful at all.
I will attempt to prove to you, that not only are cryptocurrencies (particularly PoW currencies) a real currency, but the high energy usage is not a drawback, but actually a benefit, despite the environmental impact.
Short answer, yes.
Long answer? eh.
Firstly we need to eliminate a cause of concern, which is the government. Governments across the world have legislation on currencies, or should I say "currency" as there is usually only one currency. This currency is appointed the "legal tender" for that country , and all transactions must be recorded in that currency, and you pay taxes in that currency. In such a regulated market, there can be no other currency.
Therefore, no cryptocurrency is a "real currency" in the western world, in the US the Dollar is legal tender, in the UK it is Pound Sterling, in in Eurozone it is the Euro.
Assets. No different to stocks and shares. When you pay with crypto you are exchanging assets, and thus liable for taxes such as capital gains in you pay for something in crypto for more than you bought that crypto for.
In this scenario, anything can be a currency.
F.A Hayek wrote a book on this topic called The Denationalisation of Money.
Money throughout history has been picked by the market, not governments. A currency needs to be marketable, desirable, something the majority of people will accept as payment, but also difficult to inflate, therefore expensive or difficult to produce.
During the Romans, salt was used as a currency, it was desirable for the majority of people, and thus people were willing to take it as tender.
In America, tobacco was used as currency. It was desirable to a large number of people, and thus it was accepted as tender, the government even accepted it as payment for taxes.
Without government forcing a specific currency, the most marketable goods in an economy will become the "currency" to exchange for other goods, no central planning required.
This is where a lot of would be crypto users hop ship back to government issued/regulated currencies.
From Coin Law:
"Bitcoin’s network drew an estimated 138 terawatt-hours of electricity over
the most recent year, roughly 0.5% of global consumption, according to the
Cambridge Centre for Alternative Finance."
So one cryptocurrency alone (albeit the biggest), provides 0.5% of the global demand for electricity.
With energy demand ever increasing, especially with the scaling of AI datacentres across the world, and the supply chain shortages for fossil fuels, the price of electricity will only increase.
Because its profitable.
The way the market determines an efficient use of finite resources, such as electricity, is by the profit which can be made from consuming those resources.
If there is no demand for cryptocurrencies, that being there is nobody who wants to hold or use it, the currency would have no demand, and thus with a high supply, it would be worthless, thus there is no feasible way to profit from mining cryptocurrencies if there is no demand for it.
Therefore, if its still profitable to mine cryptocurrencies, then its an efficient use of electricity, as people want it and willing to pay the market price for it. If someone else can profit more from allocating that electricity somewhere else, then it would price crypto out of the market, but nothing has, crypto continues to be used today.
Even AI, the other big electricity hog, has failed to force crypto out of the market. It is safe to say, PoW cryptocurrencies like Bitcoin are here to stay for the forseeable future.
Remember when I mentioned the US used tobacco as currency in the early days?
We only need to look at the result of it to see exactly why we do not want to make mining cryptocurrencies easier and cheaper.
Tobacco became more and more scalable on plantations, more and more of it was produced at such a high rate, that inflation went through the roof, it got to the point where you couldn't carry enough tobacco to buy anything, so people started putting it into certified barrels and trading these certificates with others to pay for goods, this is how the concept of a printed paper currency came to be.
The US would later fix the US Dollar against gold, I will explain why very shortly, but the idea is the paper bill you were given was directly exchangable for a certain amount of gold, its worth was fixed against a commodity, one which is widely accepted within the global market, this was called the Gold Standard. It would be later blamed to a large extent for lengthening and causing the great depression, and would be abolished, the US in particularly, going as far to ban the ownership of gold for a large amount of the 20th century to ensure people couldn't continue using it as a currency.
Why the use of gold? Well its simple, its marketable, its stable as its at the bottom of the reactivity series, so it really doesn't like reacting with other elements and forming compounds, unlike metals such as iron which oxidise (rust). However, the major reason was it was resistant to inflation.
Gold for a large part of history was difficult to extract, refine and purify. This changed with the invention of the Cyanide Process which made it far cheaper to refine gold. This led to gold rushes in California, Australia and other countries when miners struck gold and thought it would make them rich.
To their shock, these miners ended up being just as poor as they were before, because increasing the supply of money, decreases the buying power of that money, and if its too easy to "print" or mine more of that currency, its buying power continues to decrease, and thats the only way you get monetary inflation.
Today, the supply of money is controlled by government, in the US you have the Federal Reserve, in the UK you have the Bank of England, but the process is the same, whenever government needs more money to make up the shortfall in taxes and borrowing, the central bank prints more money, spends it while the buying power is high, and the result is the cash in your pocket is worth less.
Milton Friedman spoke a lot about it in a short documentary that I recommend you watch as it is fundamental to understanding why the supply of money increasing is bad. In the result, we get "taxation without representation", simply meaning, you are taxed but without any legislation or politician voting to increase taxes, and that is why every political party in the West does it, and why none of them ever bring it up in government. Ever wondered how the US maintains such high government spending? Because the US Dollar is printed en masse to pay for it, and thus the buying power of the Dollar bill continues to fall.
In the last 50 years, gold is up 3,760.11% against the dollar
(source), that is
not because gold is now hugely more valuable, but because the value of the
US Dollar, its buying power, has decreased substantially through monetary
inflation caused by endless printing of more money.
Now with this long detour, I can explain why the high energy use of cryptocurrencies are essential for the stability and function of the currency. If they were too efficient, we wouldn't have enough resources consumed to produce it, and thus it would be far too cheap to make more through mining more. As a result, it would outpace the increase in consumer goods and services, therefore the buying power of the currency would decrease, and it would just become another worthless currency.
This does mean there is a fatal flaw to cryptocurrencies, if we were to invent a way to mine Bitcoin (for example) with such efficiency that its almost costless to mine, the buying power of Bitcoin would crash, it would be far too easy to produce more currency, and the supply would outpace the demand.
TL;DR the more energy consuming mining is, the more resistant the currency will be to inflation, and thus the harder it is for someone to artificially increase the supply of currency to another's detriment.
Well, the concern to a certain extent is valid. Energy is polluting to produce. However, this isn't exclusive to cryptocurrencies. The side effect of gold production had the same problem, massive amounts of cyanide was used which is highly toxic, and a discharge into the environment could cause massive environmental damage.
The simpliest way to prevent the externalisation of emissions onto others is a simple carbon tax. If crypto continues to be profitable after the cost of the emissions are added onto it, then there is no reason we should prohibit cryptocurrencies.
Is proof of work a waste of resources?
Yes and no.
When it comes to proxies, I would definitely agree it is, and I hope organisations stop using PoW as some silver bullet to crawlers, because in the attempts to externalise the costs on the crawlers, they end up externalising it onto their legitimate userbase too.
When it comes to currencies, definitely not. A currency which is restricted from inflating due to its cost (in electricity) produces more good than evil. We live in a day and age of online shopping, and digital transactions, and without cryptocurrencies, there remains no way to pay without the government tracking every payment we make, and every location we were at.
Privacy isn't a privilege, it is a fundamental requirement for a free society, and if we are to move away from cash payments (which is difficult to trace, and anonymous) to digital payments, we need a way to exchange without going through government. Cash can continue to be used in person, and is a far better way of paying as it doesn't require your phone to be charged, or an internet connection, but it is difficult, or outright impossible to use cash for online payments, and thats where cryptocurrencies really shine.
For those who are on the left, and have read all of this and thinking it's a load of pro-company propaganda, let me try to convince you quickly. Across the world, trans people are being persecuted, how do they get their HRT? Though online transactions, but if that same government persecuting them can see everything they buy, and where from, how do they get their HRT?
It doesn't matter where you are on the political spectrum, privacy and inflation affects us all, and we should all be pushing towards a currency which is resistant to inflation, and resistant to coercive control from any entity, whether it is a family member (who controls your bank account) for example), a company or group of companies, or the government.
I hope this post provides some clarity on the concerns around Proof of Work cryptocurrencies, and highlights how the "wasteful nature" is not a drawback, but its secret weapon. Thank you for reading!