Cardano and ban of PoW

President Biden signed executive order 14067 to support responsible digital asset development, in line with climate change objectives, and for the benefit of everyone in America. An energy report was published that provides the assessment directed by the executive order. In the report, it is suggested to consider legislation to limit or eliminate the use of high energy intensity consensus mechanisms for crypto-asset mining. It could basically mean a ban on Bitcoin. According to the energy report, Cardano is one of the largest Proof-of-Stake blockchains in the world in terms of market valuation and one of the most energy-efficient at the same time.

What could this mean for the cryptocurrency industry and for Cardano?

Technological progress cannot be stopped

For a long time, Proof-of-Work (PoW) has been considered the most secure network consensus that had no competition. The IOG team implemented Proof-of-Stake, which has been running seamlessly in Cardano for two years. Technological advances have been made that can reduce power consumption by up to 100,000 times. In addition, Cardano is more decentralized than Bitcoin. The PoS consensus allows increasing the scalability of the blockchain by several orders of magnitude.

The report compares different consensus mechanisms. Both PoW and PoS are considered by the authors of the study to be first-class in terms of security and decentralization. Globally, PoW projects account for 0.4 to 0.9% of electricity consumption while PoS projects account for 0.001%. To give you an idea, Bitcoin consumes more electricity than all the refrigerators in American homes.

PoW proponents will always argue that energy consumption is necessary for network consensus. However, the reality is that Cardano is a top 10 project and so far no one has been able to prove that PoS doesn't work. The source code and all academic studies are open-source. Anyone can run their own Cardano node. Cardano proves every day that we can have a highly decentralized and secure blockchain without having to sacrifice our planet.

The main reasons, why a PoW ban is being considered, include excessive energy consumption, noise pollution, threats to the stability of the electricity grid, and increased prices for consumers.

What would a possible PoW ban mean for the community and for Cardano?

Complex decision making

Bitcoin maximalists lobbied the White House for a PoS ban. We might now rejoice that the government has pragmatically assessed the environmental impact of PoW and is proposing a Bitcoin ban. PoS is considered the environmental-friendly consensus that should have been preferred.

Governments are certainly not our friends. If PoW can be banned today, PoS can be banned tomorrow for other reasons. Let's not forget that Bitcoin maxis have also lobbied for all projects other than Bitcoin to be considered securities. This threat is still real.

The fate of cryptocurrencies and their adoption should not be decided by politicians but by the people. Representatives of individual communities should not try to influence legislators and push their projects at the expense of others through laws. This would definitely be a loss for the whole industry. It would be hard to see Bitcoin as the leader of a new free world if it were to be enforced through laws and the elimination of competition.

Lobbyists should realize that their behavior is taking us back to the world of fiat currencies. Personally, I would stop supporting Bitcoin in any way if it were to be enforced through laws or bribes. Smart people are usually not maximalists because they don't know what is best for our future.

Communities have a chance to realize who is a friend and who is a foe. A united community can definitely do more than divided groups.

Protecting the environment is a topic that concerns each and every one of us. Minority communities should not be able to enforce a system that has a negative impact on our planet. There is probably no serious research on the number of PoW supporters and opponents. I suspect that there may be more PoW opponents than fans across the planet. Anyone who doesn't own BTC is not economically biased to support PoW. Unfortunately, this is very likely a reality that PoW fans should be aware of. Bitcoin doesn't need institutional money, it needs support from ordinary people.

Most people on the planet don't yet see the potential that Bitcoin, and other cryptocurrencies like Cardano, have. Therefore, they don't see why cryptocurrencies should consume such a large amount of energy. If people were to vote to ban inefficient steam engines or coal-fired power stations, they would probably not oppose it if there were more environmentally friendly alternatives. Shouldn't we be thinking the same way in the case of PoW? Who should have the right to decide on the ban?

Bitcoin maximalists are trying to pretend that PoS is not an alternative or it doesn't work. Cardano is proof that PoS works. It may be the right time for the debate to become rational and lead the entire cryptocurrency industry to the best solution that will be acceptable to all. Cryptocurrency adoption is still very low and the majority of the population does not hold cryptocurrencies yet. We have to keep in mind that people are mostly green-minded and we have to accept their preferences. Bitcoin has been around since 2009 so if people wanted to they could have adopted it long ago. Disinterest can be interpreted as disagreement with PoW.

I'm certainly not saying we should sacrifice PoW. As an industry, we should think about how to innovate PoW. Useful-PoW is one way. IOG has studies that could help the Bitcoin team change PoW. It's up to the community to decide and it would definitely be seen as a step in the right direction.

The IOG team is innovating Cardano because it is the only path to adoption. The Bitcoin community has opted for a conservative approach. This seems to be a disadvantage in the context of a possible PoW ban. The technology must evolve or it will be replaced by another. This is a perfectly natural course of events on our planet. The Bitcoin community should rethink its approach to the protocol.

What would a possible PoW ban mean for Cardano?

Banning PoW would shake up the entire blockchain industry in the first place. It is difficult to predict the impact of this decision, but it is very likely that it would mean an outflow of institutional investors from PoW projects. For Bitcoin, it would have a direct impact on the security of the protocol, as the security budget is dependent on the value of BTC coins. If the situation does not improve, the team would have to think about introducing inflation or look for another solution like a transition to PoS.

Bitcoin will survive a possible PoW ban in the US or Europe. Miners can take their business elsewhere. However, the hash rate may decline in the long term and this must be taken into account. After the PoW ban in China, the miners moved on. The ban in China did not have such a big impact on the value of BTC coins. A ban in Western countries would not only affect mining but probably also the value of the coins. Unfortunately, we don't know at this point what a ban would mean. If only a ban on mining or also a ban on trading and using BTC coins.

A decline in the value of BTC coins would likely cause a decline in the value of ADA coins. While we can speculate that investors would start to prefer PoS projects, we can't count on it. In any case, Cardano's security is based not only on the value of ADA coins but also on high decentralization. Although some people might sell when the value of ADA coins drops, we don't expect the number of stakeholders to drop by tens of percent. Cardano would likely survive the turmoil in the cryptocurrency market.

The mission of the Cardano project would remain the same. If the ban were too strict and also restricted the use of Bitcoin, the Cardano mission would be more important as the blockchain would remain available in the US. The US government views the blockchain industry positively and sees the benefits of decentralization. For example, for refugees who live in the country and have no documents. Projects like Cardano will provide them with the creation of financial identity.

It seems that the US government is not trying to destroy the entire blockchain industry. It is only trying to apply similar standards that apply to, for example, the automotive or financial sectors to the blockchain industry. We may not like it, and we may doubt the correctness of some of the actions, but unfortunately, that is all we can do about it. At least in the context of people who don't live in the US and have no influence on lawmakers.

Cardano uses PoS and is seen as a green alternative to Bitcoin. Banning PoW will have no direct impact on Cardano. However, regulations will continue and some negative news may come from another direction. There is no reason to rejoice. Governments around the world have decided that they will regulate the blockchain industry and it is happening. No one has banned PoS yet, but let's not take this as the ultimate win.

Conclusion

The fourth generation of blockchain projects could be a multi-resource consensus protocol. The IOG team considers implementing it in Cardano. Cardano would have a PoW alongside the PoS to provide blockchain security in parallel. In the shadow of a possible PoW ban not only in the US but also in Europe, it would almost certainly not be the same PoW that Bitcoin uses, but a Useful-PoW. That is a PoW that would count some useful work alongside securing the blockchain.

Banning PoW can be seen as a crackdown on freedom. On the other hand, governments have a mandate to do their job for the benefit of the majority. No wonder they do what they have in their job description. If you can have any influence on the decisions of legislators this is the time to speak up and make your views known. Cryptocurrencies have never had a chance to assert themselves on their own. Cryptocurrency adoption is about people's free choice. People have to take action sometimes if they want to push something through in society.

Most important of all is Satoshi's vision. No matter what technology we use to get there. Even if governments ban all current protocols, decentralization will always remain a relevant topic. Governments cannot forbid people from thinking. Technological progress cannot be stopped. Let's be glad we have a working PoS in Cardano at the moment.