Privateum’s Sustainability Approach
It just seems like yesterday when Elon Musk’s tweet back in February 2021 and announced that Tesla will be buying 1.5B worth of BTC (Bitcoin digital currency). Since then he has become yet another “Wolf of Crypto Street” having a huge impact on what happens in this market. I started watching Tesla and crypto a year ago when Elon started tweeting about dogecoin. His endorsement and follow-on public involvement would have huge impacts on this innovative space. Like when last May, Elon tweeted his concerns of this space’s growth and the increase of fossil fuel usage. He said that Tesla wouldn’t be able to continue accepting BTC as a payment due to crypto mining’s heavy use of coal and causing toxic emissions into the environment. What Elon gave to the market in 2020, he took away in mid 2021 and the market took a big dive.
Regardless of the market’s rise and fall, we all agree this is an innovative space. There is so much more innovation to be discussed. It’s not surprising as fast as everyone is moving that many are running behind. If you’re not on the forefront development of any fast moving market, it’s hard to keep up with the discontinuous innovation. Many people might struggle to keep up with a big remodeling let aside a change within the change. What is happening with the crypto market now is a paradigm shift. That’s why I’m writing this blog series. I want to help others understand what is happening now within this market and the changes it is already undergoing.
A Better Way with PoA
So what are Elon and the other market makers missing? Let’s start with the basic fundamentals behind BTC and its algorithm which is Proof-of-Work (PoW). There are many advantages to PoW, but there is a particular disadvantage to it that triggered Elon’s reaction to not associate Tesla with Bitcoin. This process requires a huge amount of electricity. Back in late February of this year, the BBC published an article where it states that BTC uses 110 TWh annually which is more than a couple countries together or it is almost 60% of all the data centers worldwide. We know the underlying root cause of the sustainability challenge. It’s the PoW algorithm that is being used right now. There is no way around it. PoW is not eco-friendly nor cost effective. But what if we change all the supplying energy to something more sustainable, renewable, and environmentally friendly? We could make marginal energy improvements, but at what costs to do it? More wind power near data centers needs to be built. Maybe it’s all data centers built inside of hydro-electric dams or we migrate to desert datacenters with solar capturing economies of scale? Changing all the power consumption to renewable energy can only be achieved with a lot of money and an immense amount of time put into it.
That is why I have been researching and building a better algorithm that is eco-friendly and designed with sustainability in mind from the start. I understood the implications of unintended consequences in the early planning and designing phase of our products. We decided on the Proof-of-Authority (PoA) algorithm. I looked extensively at other options, like Proof-of-Stake (PoS), however for one very simple disadvantage, it wouldn’t work. If someone managed somehow to gain over 51% of the total stake they could overwrite transaction blocks which is a security risk. Whereas PoW requires huge amounts of energy, with miners needing to sell their coins to ultimately foot the bill; PoS gives mining power based on the percentage of coins held by a miner. PoS addresses energy issues by attributing mining power to the proportion of coins held by a miner. This way, instead of utilizing energy to answer PoW puzzles, a PoS miner is limited to mining a percentage of transactions that is reflective of their ownership stake. For instance, a miner who owns 3% of the coins available can theoretically mine only 3% of the blocks.
We were not willing to give up the security and speed benefits of PoW for PoS, but couldn’t in good conscience use them due to their sustainability limitations. So what I decided is that Privateum’s main ecosystem will use a hybrid blockchain architecture with controlled access and freedom at the same time. We decided that our architecture would have features of integrity, transparency, and security. All our main transactions are processed using the PoA algorithm which relies on validators staking their reputation. PoA is more environmentally-friendly than PoW and PoS based algorithms since block validators aren’t competing to find block hashes, and this allows pre-selected nodes to run a chain using equivalent energy of a light bulb, or 78 Watts. Most public PoW and PoS networks allow anyone to join without revealing their identity, which solves privacy and security issues but doesn’t address environmental impact and sustainability. That’s why we focused on all factors in play and standardized on PoA. By definition, “PoA validators need to make themselves known and are selected based on their trustworthiness.”
In PoA-based protected networks, transactions and blocks are validated by approved accounts, known as validators. Validators run software allowing them to put transactions in blocks. The process is automated and does not require validators to be constantly monitoring their computers. It however does require maintaining the computer (the authority node) uncompromised. The term was coined by Gavin Wood, co-founder of Ethereum and Parity Technologies.
How we are achieving this is by basing ourselves on three fundamentals:
-First, “Encrypt Everything, Know Nothing” is an end-to-end encryption where the information is protected even from us.
-Second, “Zero Trust” is the main principle of Privateum’s corporate security. Any access to our infrastructure is granted based on a user’s identity and context, with continuous monitoring for security breaches and validation of privileges. Privileged Access Management for securely managing permissions to critical protected network resources.
-Third, the most important differentiating feature of Privateum is the concept of a Ghost Network. On a traditional p2p network, nodes participate equally in the sharing of data and network resources. These nodes are all compensated equally for their contributions toward preserving the network. Our hybrid approach of a secure enterprise solution and private blockchain protected network in high speed operational memory provides clients with secure, reliable, fast and cost effective transactions. Not to mention supports our sustainability and eco-friendly goals.
Private addresses the disadvantages of PoA with our Ghost Network plus our hybrid blockchain architecture plus our KYB and KYC procedure. Our validators have to make a deposit and they can never have a reward greater than their deposit in order to prevent fraud. With Privateum, validators are our network business partners who will pass required KYB verifications and will gather required trustworthiness ranking scores. It’s this architectural approach and advantage that is causing the paradigm shift I mentioned above. This is why we are sustainable and eco-friendly. We planned and designed it from the beginning. We saw the inherent issues with PoW and PoS, so we developed a better way.
PoA is suited for private networks, but with the right additions (Ghost Network, hybrid blockchain architecture, KYB/KYC, it can service public networks, where trust is distributed. Our PoA consensus algorithm leverages the value of identities, which means that block validators are not staking coins but their own reputation instead. Therefore, PoA blockchains are secured by the validating nodes that are arbitrarily selected as trustworthy entities. The PoA model is better suited for companies and organizations because it enables them to maintain their privacy while availing the benefits of blockchain technology.
Although the conditions may vary from system to system, the PoA consensus algorithm is usually reliant upon:
- Valid and trustworthy identities: validators need to confirm their real identities.
- Difficulty to become a validator: a candidate must be willing to invest money and put his reputation at stake. A tough process reduces the risks of selecting questionable validators and incentivizes a long-term commitment. That’s why we partner with enterprises as validators.
- A standard for validator approval: the method for selecting validators must be equal to all candidates.
The essence behind the reputation mechanism is the certainty behind a validator’s identity. This can’t be an easy process nor one that would be readily given up. It must be capable of weeding out bad players. Finally, ensuring that all validators go through the same procedure guarantees the system’s integrity and reliability.
There is a negative perception of PoA. Doesn’t it forgo decentralization? One could say that this model of consensus algorithm is merely an effort to make centralized systems more efficient. PoA systems do have a high throughput, but aspects of immutability come into question when things like censorship.
A criticism of this algorithm is that the identities of PoA validators are visible to anyone. The argument against this is that only established players capable of holding this position would seek to become a validator (as a publicly known participant). Still, knowing the validators’ identities could potentially lead to third-party manipulation. For instance, if a competitor wants to disrupt a PoA-based protected network, they may try to influence public known validators to act dishonestly in order to compromise the system from within. This is solved with end-to-end encryption where the information is protected from everyone even from us and all the cryptographic libraries we use are open source which can guarantee that the encryption algorithms do not have stealthily built in back doors.
PoW, PoS, or PoA all have their own unique advantages and disadvantages. It is well known that decentralization is highly valued within the cryptocurrency community and PoA, as a consensus mechanism, sacrifices decentralization in order to achieve high throughput and scalability. The inherent features of PoA systems are a stark contrast from how blockchains have been functioning until now. Again, there is an evolution going on today within this market causing changes therein. PoA presents an interesting approach and cannot be disregarded as an emerging blockchain solution, which may suit well for private blockchain applications. We believe this is the right balance of what the market needs and the environment requires. Therefore, Privateum has taken a bold stance by standardizing on PoA to address enterprises’ common concerns of inefficient upgrades and waste of energy.
BMC states that “Bitcoin mining uses a negligible amount of energy, is rapidly becoming more efficient, and is powered by a higher mix of sustainable energy than any major country or industry.” It’s important to note that the BMC is led by Michael Saylor whose company MicroStrategy is the largest corporate holder of bitcoin. Back in May and prior to the BMC’s formation, Saylor invited like-minded industry leaders to an open forum where several top North American Bitcoin mining firms met with Musk. The outcome was the formation of the BMC and agreement to provide current and planned renewable energy usage transparency along with lobbying other mining operations globally to do the same.The June study is their first attempt.
It’s too early to tell if the new study had any impact on Musk’s perception when he wrote that Tesla would resume allowing Bitcoin transactions when the global Bitcoin mining network was verifiably backed by at least 50% renewables. I feel this is a good step in the right direction, but wouldn’t it be much better to engineer sustainability into all Bitcoin technologies from the start to not require energy? By the BMC’s research it shows that 44% is still non-renewable and wasteful which equates to a huge amount of CO2 being pumped into the atmosphere. With a PoA protected network this should be zero.
There is no perfect consensus mechanism. PoW and PoS lack scalability and sustainability, and aren’t protected from malicious activity. However, they are well known by the cryptocurrency community for their high decentralization and are the current leading algorithms being used. PoA, as a consensus mechanism, sacrifices anonymous decentralization to achieve high throughput, scalability, and supports sustainability. PoA is a superior algorithm and shouldn’t be neglected as an emerging blockchain eco-friendly solution.
Regardless, I’m happy to see what we believe in is being taken seriously and that we are not alone. At least the Bitcoin mining industry is coming together, voluntarily, to work collectively to solve the issue. Our hope is that as they chase the issue, they learn there is a better way to code in sustainability from day 0. As an Enterprise Architect, I always design efficient systems which is how I lead the Privateum team. We are always architecting fundamental principles for privacy, security, globalization and sustainability into innovative solutions. At Privateum we are dedicated to one enduring idea: Improving the world-changing power technology by bringing enterprise solutions to the blockchain ecosystem.
The great thing about crypto space is that it has attracted the brightest minds and most innovative people who are well equipped to solve the energy consumption and sustainability problems related to crypto mining. We as a community have to come together and solve the crypto carbon footprint. Hopefully, it won’t take long before solutions like ours will be implemented worldwide throughout different business areas and sectors. Real world successful businesses have not been able to close the gap of crypto due to lack of transparency and sustainability. Sooner or later, large enterprises will have to come onboard. The reason why they have been running behind is due to them competing for their own, whereas through our platform those companies will be able to use their reputation to earn money. This will result in cheaper transaction fees within our Ghost Network. Whenever businesses compete with each other in order to increase their reputation, it automatically translates to better conditions for our day-to-day members and partners.
My hope with this blog is to encourage others to look at innovative ways to solve similar huge scale problems such as this one when they are building their products. By default we shouldn’t build anything that is heavily energy efficient and is always unsustainable. If we succeed in doing that, we won’t ever need to have energy and sustainability conversations. But this can be only achieved when we address it from the start…not months…years…decades later. We do this because we all know it’s the right thing to do…we design based on sustainability from the start…architect it…code it…and deliver only products and solutions to the market that are energy efficient or even better…completely non-dependent on energy. Join us as we continuously disrupt this industry with innovative solutions that make things better for everyone.