POW is also known as mining. It is done so that new linked and cryptographically verified records can be added to the immutable blockchain database that underpins crypto tokens.
Mining involves solving computational problems. The more devices you can throw at mining, the greater the chances are of winning the verification lottery and earning rewards. Multiple powerful graphics cards capable of small operations in parallel are popular with miners, and they each use hundreds of Watts.
That's all very esoteric and geeky, and also supremely inelegant and inefficient. To give you an idea of how wasteful the process is, local Bitcoin fans have suggested using the 570 megaWatt hours that Tiwai Pt can produce for mining.
Politically, mining looks terrible in a global climate emergency. Responding to this, Ethereum has now started using proof-of-stake (POS), merging a new Beacon Chain blockchain with the original proof-of-work (POW) Mainnet distributed ledger.
The Ethereum Foundation runs that show and claims power usage for its crypto token is down by 99.5 per cent compared to POW.
To validate transactions with POS, nodes need to stake 32 ETH or somewhere north of NZ$70k currently. You can't withdraw the staked ETH, but you get rewards for validation.
Journalist David Gerard who has been following crypto for many years now, explains that POS is a case of "thems what has, gets".
When it becomes possible to withdraw the staked ETH, this will be rate-limited "for security reasons". Transaction speeds for Ethereum remain a leisurely multi-minute process and fees aren't coming down either.
The lower energy use of POS sounds like a big improvement. An additional benefit is that moving to POS for Ethereum will make graphics cards cheaper and easier to find, as mining is no longer profitable.
However, this is the junction where it becomes apparent that the forced POS change means the notion of decentralisation for crypto tokens has been defenestrated like a hapless Putin crony.
Despite claims to the contrary Ethereum is centralised; Gerard points out that almost all transactions for Ethereum go through a private company because doing them yourself on the blockchain is really hard.
Bitcoin mining has been centralised since 2015, with just a few entities doing most of the work. Staking is already centralised Gerard points out, as three organisations handle around 54 per cent of Ethereum funds.
As Gerard puts it: "decentralisation was always a phantom. At most it's a way to say "can't sue me, bro."
Moving to POS - and Bitcoin won't - isn't going to help with the rampant crime and fraud that's plaguing the crypto industry either.
If you accept that crypto tokens have value, and yes, people are exchanging fiat money for all sorts of virtual coins, some US$14 billion was stolen in 2021 alone. That's more than double what was thieved the year before, and the problem here is that once a transaction's been done, that's it forever. Can't change that immutable blockchain, remember?
Proposals are now cropping up for how to handle what is clearly a huge problem. They involve mental gymnastics to create reversible transactions without changing data on the blockchain.
This is to avoid a "hard fork" like Ethereum did in 2016 to deal with a huge million dollar hack. It meant starting up a new blockchain. Reversible transactions would require, uh, a "decentralised quorum of judges" to decide if hacking victims should get their virtual funds returned. Yep, said without irony.
The use of crypto for crime means United States sanctions will have to be implemented, or else. Handwaving about "decentralisation" isn't going to cut it as a defence.
Reversible transactions and central control; the crypto bros just need to make virtual currencies practical to use not just for ransomware raiders and nationstate hackers and they'll have reinvented banking.
