A proposed change to Bitcoin called ‘Optical proof-of-work’ would improve geographic distribution of hashrate and quell fears of climate-related pushback, proponents argue.Read MoreFeedzy
Bitcoin’s energy use has long been a hot-button issue. Now some developers say the solution could lie in a more energy-efficient form of computer processing that, perhaps appropriately, uses lasers.
When we consider Bitcoin’s energy use, really, the discussion should focus on emissions. Industry participants have worked toward improving transparency in that category the past couple of years. If we look even further back, Hal Finney – who received the first bitcoin transaction ever from the system’s creator, Satoshi Nakamoto – said he was “thinking about how to reduce CO2 emissions from a widespread Bitcoin implementation” in 2009.
Most arguments about remediating Bitcoin’s emissions problem center around:
Rarely discussed is the possibility of changing to a different type of PoW.
Bitcoin Optech, a working group of developers that produces free educational materials, pointed out in its Jan. 5, 2022, newsletter that Bitcoin Improvement Proposal (BIP) 52 was officially brought into the discussion for a proposed hard fork, or major change to Bitcoin. BIP 52 aspires to shift expenses from electricity costs or operating expenses to hardware costs or capital expenditures. This shift would be achieved through what is known as “optical proof-of-work,” or oPoW, a proposal created by Michael Dubrovsky, Bogdan Penkovsky – both contributors to the non-profit PoWx – and an assistant professor at New York University’s Courant Institute of Mathematical Sciences, Marshall Ball (among others).
In short, oPoW would change the proof-of-work algorithm used by Bitcoin now to one dubbed “HeavyHash” that is most efficiently computed using a new class of photonic processors. The motivation behind oPoW is to “decouple Bitcoin mining from energy and make it feasible outside of regions with low electricity costs.” This shift, proponents argue, would improve geographic distribution of computing power, or hashrate; decrease barriers to entry for new miners; and quell any fears of climate-related pushback as Bitcoin proliferates and grows in popularity, since the switch would reduce Bitcoin’s energy demand.
It is worth mentioning before we go further that optical proof-of-work is still not fully developed and has not been used in practice in a Bitcoin testnet, or an experimental environment for software changes. There is a live implementation of oPoW called oBTC, which is based on an oPoW-modified Bitcoin codebase published by PoWx in March 2021. It is not actively marketed or managed by oPoW’s creators, but there is a community of supporters who mine and trade oBTC. Additionally, PoWx is collaborating with optical computing companies, including Lightelligence, to explore commercialization of an oPoW miner and is testing HeavyHash on a demo platform.
There are many benefits of Bitcoin’s energy-intensive construction, namely robustness and anti-fragility, for example. That said, just because proof-of-work has worked well throughout Bitcoin’s history doesn’t mean that other ideas should be dismissed on sight. Bitcoin is a technology and technology changes.
First and foremost, lasers have shown promise in making computation more efficient. Photons enable a higher bandwidth than electrons when used in computers, which is why fiber internet (powered by flashing lights through glass cables) is faster than “regular internet.” While there is some disagreement about the feasibility of laser-based computers replacing semiconductor-based ones outright, optical computation could theoretically improve performance. Not to mention it fits the “laser eyes” meme popular among bitcoiners.
From a business perspective, oPoW makes a lot of sense. Instead of having capital expenditure and operating expenses taking an equal share in running a bitcoin mine, the cost shifts toward upfront investment. As a result, oPoW Bitcoin hardware would be markedly more expensive than current machines. That investment could be more easily financed, as lenders would have expensive equipment to collateralize against, and the cost of operations would be predictable because miners would be less sensitive to changes in energy availability and pricing. As such, cash flow pressures would be further eased as pricier equipment allows companies to run additional depreciation expense through their financial statements – an accounting trick, in practice, that nonetheless has real financial consequences.
Additionally, if the technology worked it would make energy a less important piece of Bitcoin’s composition. Notwithstanding the genuine benefits of an energy-intensive blockchain, a shift away from energy consumption would unquestionably ease political pressures, especially in the United States and the European Union, where a regulator has called for a ban on proof-of-work crypto mining and the parliament seriously considered such draconian measures (though ultimately rejected them). In this scenario, politicians and regulators might conceivably warm to Bitcoin if one of their major points of contention were to fall away.
Proponents of oPoW also argue that the shift away from energy dependency would improve the geographic distribution of bitcoin mining since it would no longer be concentrated in places with cheap, abundant energy. Instead, it would be mined wherever capital is available to be put to work to mine bitcoin. This would make Bitcoin less susceptible to aggressive swings in hashrate if, say, a coal mine explodes in China or the Kazakh government shuts down the internet.
Another argument oPoW proponents make is that the main source of Bitcoin’s network security comes from game theory as opposed to its energy use. The idea here is that bitcoin miners are compelled to be good actors; otherwise, their mining equipment and bitcoin would become worthless if a successful attack on the network were carried out. Right now, it is practically impossible to rent enough machines to control 51% of Bitcoin hashrate in order to attack the network, so an attacker would have to be a large owner of mining assets. With that in mind, shifting even more of the cost of mining to capital expenditure would increase the overall security of the system.
Lastly, a hard fork, or backward-incompatible code change, is not necessarily required for the Bitcoin network to test and eventually implement oPoW. It’s theoretically possible to add oPoW to Bitcoin as a soft fork, one that would allow users to run the old version without causing a split in the network. This is a potentially important point, as hard fork proposals have historically been highly contentious among bitcoiners. The most famous example is the Bitcoin Cash hard fork that stemmed from the virulent debate over block size and the block capacity enhancement of Segregated Witness in 2017.
In a soft-fork test phase, miners could ensure that most mining revenue would be earned using the current mining algorithm and a small percentage using oPoW. This could create sufficient incentive for oPoW to be stress-tested and to incentivize the manufacture of dedicated oPoW miners. If this test phase were successful, the breakdown could be adjusted over time such that oPoW accounts for up to 100% of Bitcoin’s mining activity. If unsuccessful, it could be phased out.
There are several arguments for why oPoW wouldn’t work for Bitcoin, however.
In the early days of bitcoin mining, we saw China dominate, owing to its glut of cheap energy. That cheap, abundant energy was a result of China looking to aggressively expand its economy and become energy independent. In doing so, China overbuilt its power generation capacity. Bitcoin mining ended up coalescing within China because China fulfilled bitcoin miners’ needs for cheap input costs (i.e., electricity) to keep operating expenses down.
Simply shifting the cost curve to up-front cost might lead to the exact opposite centralization problem. Instead of most bitcoin mining ending up near cheap, abundant energy sources that popped up in developing, labor-abundant countries, like China, they might coalesce in developed, capital-abundant countries, like the United States. Specialized mining chips, or ASICs, already have a high-ticket price (over $10,000 for some models) – imagine if they were even more expensive. Requiring immense amounts of startup capital would have a meaningful impact on the feasibility of solo mining, which would itself be a blow to decentralization.
Next, oPoW may not work in practice. It’s still a theory, and although it has been put through the wringer that is the developer brain trust, no one knows how oPoW will behave and work when real people start using it and their money is at stake. Just like the lack of commercially successful implementations of proof-of-stake, oPoW is untested, particularly in Bitcoin. There is no guarantee that it will be secure enough for Bitcoin, and some of the comments on the BIP GitHub repository say as much. Developer Jeremy Rubin pointed out a potential design flaw that could give some miners an unfair advantage over the rest if it was exploited. As mentioned above, PoWx has launched oBTC, a Bitcoin look-alike that implements oPoW. But even if oBTC is successful within its own ecosystem, that doesn’t necessarily mean it would be successful in the context of Bitcoin itself.
Lastly and most importantly, oPoW would fundamentally change the way Bitcoin interacts with the rest of the world. Energy is an important part of Bitcoin now, and as Bitcoin grows it will become an important part of the energy system. On top of that, while capital is put to work in PoS systems and more of it would be invested upfront in an oPoW system, that capital could be put to work elsewhere. And that capital is far more easily moved than energy – given the technological cap on our ability to transport energy. (A bank wire transfer may seem slow, but have you tried building an oil pipeline?) It’s potentially more wasteful to tie up capital in a PoS or similar system. Capital can be used almost anywhere on countless ideas or projects. The energy used by a PoW system, on the other hand, can’t be used as freely as capital.
Removing the energy-intensive component from Bitcoin could fundamentally change what it has become and what it may become.
oPoW remains one of more than 150 bitcoin improvement proposals being discussed by developers.
To receive a BIP number and be added to the repository, a proposal simply must follow the correct format and be technically possible to do. It doesn’t need broad support or even be a generally “good idea.”
Although oPoW may have to be implemented as a hard fork, that’s not to say that the update would be dead on arrival. We don’t know what improvements can be made to the proposal and we don’t know where Bitcoin will be tomorrow. So keep your laser eyes on this fascinating, if debatable, idea.
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