Can you secure a cryptocurrency without burning electricity?

Proof-of-work secures a blockchain by making attackers out-compute everyone else, but that requires spending enormous amounts of electricity. Yes, mostly: proof-of-stake protocols are consensus mechanisms that select validators in proportion to how much of the cryptocurrency they already hold, specifically to avoid the computational cost of proof-of-work. Instead of miners racing to solve puzzles, validators put up a stake of coins, and the network picks among them to approve the next block.

The first working version was Peercoin in 2012, though its design still resembled proof-of-work under the hood. The logic behind proof-of-stake's security is straightforward: validators must hold a meaningful quantity of tokens, so an attacker would need to acquire a large fraction of those tokens to attack the network. The cost of an attack moves from electricity to coins.

That different kind of cost comes with its own weaknesses, though. Because validating doesn't require spending much computing power or money, proof-of-stake systems are vulnerable to a problem nicknamed "nothing at stake": validators actually benefit from approving every competing version of the chain they're shown, since each successful validation pays out, creating an incentive to support multiple conflicting histories at once rather than committing to just one. Systems manage this by penalizing validators caught approving conflicting chains, or by designing rewards so there's no benefit to causing conflicts in the first place.

The switch isn't just theoretical. On 15 September 2022, Ethereum, whose currency ether is second only to bitcoin in market capitalization, switched its entire consensus mechanism from proof-of-work to proof-of-stake in an upgrade known as "The Merge," cutting the network's energy usage by more than 99% in a single event — turning an electricity-hungry mining operation into a system secured mostly by coins sitting in validators' accounts.