News
| 22.04.2022

Proof-of-stake eco-friendlier and secure alternative to cryptocurrency mining

In most cryptocurrencies mining (the process by which new cryptocurrency coins are entered into circulation) is necessary for securing transaction finality. Unfortunately mining is not environmentally friendly. It is common knowledge that Proof-of-Stake is pollution free and new research suggests that it is as secure.

In his doctoral thesis, Ville Savolainen explores blockchain based cryptocurrencies, and blockchain security in particular. Mining, which is a secure method, generates tremendous e-waste and worsens the global chip shortage. In addition, global cryptocurrency mining consumes more electricity than many individual nations including Finland, Ireland, and Sweden. Hence it generates tremendous CO2 emissions.

“However, there exists an alternative to mining – Proof-of-Stake. PoS cryptocurrencies do not require vast amounts of energy or computational power. Instead, part of cryptocurrency is staked, which means that it is locked in a cryptocurrency wallet. Basically, if someone acts dishonestly, they may lose their valuable stake”, states Savolainen.

More PoS cryptocurrencies are emerging e.g., the second largest cryptocurrency Ethereum is taking steps to transfer to a PoS protocol. Savolainen’s research is quite fundamental because it describes staking behaviour, and staking determines safety, reliability, and viability in PoS cryptocurrencies.

If you increase interest rates, you’ll have higher savings and lower inflation. However, in PoS-cryptocurrencies if you increase staking rewards, you’ll have high cryptocurrency specific inflation with larger proportion of coins staked. Hence, there exists a tradeoff between security and inflation.

“I find my research results quite ironic: Cryptocurrencies which are seen by some as efficient hedges against central banks “recklessly” printing money are most secure if they have high monetary expansion rates, Savolainen summarizes.

You can read the whole thesis here.

Ville Savolainen will defend his doctoral thesis “Theoretical Essays in Blockchain Economics and Asset Pricing” at 4 pm (EET) on 25 April 2022. The thesis will be defended online, and you can access the virtual Teams meeting through this link . The field of study is finance.

Opponent: Professor Kose John New York University Stern School of Business
Custos: Professor Gonul Colak, Hanken School of Economics

Contact information:
Ville Savolainen
ville.savolainen@hanken.fi