Ethereum founder Vitalik Buterin on May 27 stoked the ongoing debate about cryptocurrency's environmental toll by reiterating that he sees Ethereum’s shift to a ‘proof-of-stake’ (POS) model as a way to shrink cryptocurrencies’ enormous carbon footprint.

“Proof-of-stake is a solution to the [environmental issues] of Bitcoin—which needs far less resources to maintain,” Buterin said at the StartmeupHK virtual festival in Hong Kong.

POS is an alternative to the ‘proof-of-work’ model (POW) that Ethereum currently uses to generate new ‘Ether,’ the currency of its network. The Ethereum Foundation announced its move to a POS system in April and expects the switch to be completed by the end of 2021.

Buterin has long advocated for Ethereum to run on the POS model. His comments about the switch come as the cryptocurrency community reexamines the environmental cost of Bitcoin and other cryptocurrency mining.

The issue received renewed focus earlier this month when Tesla CEO Elon Musk tweeted that his company would stop accepting Bitcoin as payment, citing concerns over the “rapidly increasing use of fossil fuels” for Bitcoin mining. Musk’s tweet led to a free fall in the price of Bitcoin and other major cryptocurrencies, such as Ethereum and Dogecoin.

Proof-of-stake vs. Proof-of-work

Proof-of-stake operates under a “fundamentally different principle” than proof-of-work, Buterin said.

A POW model—which both Bitcoin and Ethereum currently use—employs a consensus mechanism that requires massive amounts of computational power. To verify electronic transactions on the blockchain, miners compete to solve complex math problems using computer components, such as Bitcoin mining’s use of ASICs (application specific integrated circuits) and Ethereum’s use of graphics cards.

Miners are incentivized to stack up hardware and solve as many hash computations as possible to reap rewards in the form of coins. Because it demands massive amounts of computational power, cryptocurrency mining is most popular in countries where energy is cheap and accessible.

Ethereum’s POS model secures the blockchain through verifying transactions according to Ether holders' stake in the token. It requires less computing power because it doesn't reach consensus by having miners race to complete the same puzzle.

Ethereum’s energy consumption and hardware needs could be reduced by a factor of 100, or even 10,000, with the POS model, says Buterin.

The Ethereum Foundation wrote in its blog that if the switch to POS is successful, it could reduce Ethereum’s energy use by up to 99.95%. A POS Ethereum theoretically "consumes something on the order of 2.62 megawatts," the blog says. "This is not on the scale of countries... but that of a small town (around 2,100 American homes). For reference, POW consensus on Ethereum currently consumes the energy equivalent of a medium-sized country."

Still, the Foundation acknowledges that POS is “still in its infancy and less battle-tested compared to POW,” despite its advantages in energy and hardware efficiency. “[We thought] it would take one year to [implement] POS… but it actually [has] taken around six years" due to the complexity of building such a model, says Buterin.

Shiba Inu coin

Buterin also addressed his decision earlier this month to donate 50 trillion Shiba Inu coins, thought to be worth $1.2 billion at the time, to the India COVID-19 Crypto Relief Fund.

The price of Shiba Inu, a so-called meme coin, surged in price to an all-time high of $0.000035 on May 10 after it was added to cryptocurrency exchanges OKEx and Binance. The coin's founders had given Buterin half of all SHIB coins in existence.

“These dog people were clever,” Buterin said on May 27.

The cryptocurrency community thought SHIB's founders had used Buterin as a marketing ploy or as a guarantor of the coin. But Buterin wrote in a note that he didn't want to be "a locus power of that kind."

"[It's] better to just print the coins into the hand of a worthy charity directly (though do talk to them first)."

Buterin says his donation aligns with his belief in building crypto into something that's better than the monetary system that exists now. The SHIB gift was an “opportunity to turn the meme bubble into something that could actually do good for people,” he says.

With the rise of cryptocurrencies and the conversations about their environmental costs, Buterin feels a larger sense of responsibility. "This thing we’re building isn’t just a game anymore. It’s a significant part of a new era.”