For Bitcoin, much like every cryptocurrency, each transaction that happens requires validation. The validation of a transaction can be checked using different consensus algorithms that require nodes in a blockchain to verify if the transaction took place and is valid. A node can do this by solving cryptographic puzzles and reaching a solution, which is then tested by other nodes who verify the solution. This verified transaction is then added to a block after a designated time by the blockchain. Every node that solves the puzzle gets rewarded; this process is called mining.
Bitcoin uses Proof-of-Work, which is easily the most common proofs among all but it still is considered to be full of flaws as multiple cryptocurrencies across the board are trying to find new algorithms to migrate to. Ethereum has been on the top of the list, who wishes to switch to a proof of stake blockchain in the near future. According to the founder of DogeCoin:
Consensus mechanisms are about aligning incentives to output a decision in the least centralized way. They are not designed to be flawless.
Talking about decentralization, the consensus algorithm that promises to be decentralized also seems to fulfill half the purpose. As the cryptographic puzzles require high hash powers, not every miner gets the chance to mine these Bitcoins and add transactions to a block. Only major parties and data centers get to mine most of the bitcoins continuously while others merely validate. This hash rate problem has caused problems for different currencies. The fork of Bitcoin, Bitcoin Cash, and the fork of Ethereum, Ethereum Classic, have faced grave consequences due to these issues.
Ethereum classic faced a 51% attack earlier this year. It was pointed out that it was due to the loophole that allows people with high hash powers to control the chain. Dr. Mervyn G. Maistry, CEO and founder of Konfidio pointed out the weak point of the proofs talking to BlockPublisher saying,
One major flaw of PoW is that if you are a small chain you are more vulnerable to 51% attacks, but if you are a large chain, ie. Bitcoin, Ethereum then you are protected. Coins that use the same algorithm as chains that already have a large amount of hashrate dedicated to them, such as Ethereum’s Ethash or Bitcoin’s Sha-256 are the most vulnerable to 51% attacks. For example, it would only need a small percentage of the current Ethereum (ETH) hashpower to be pointed to coins such as Metaverse, Expanse and Musicoin for a new 51% attack. A more severe vulnerability is Bitcoin Cash built on Sha-256. Despite its market cap it would only take less than 5% of the current hashpower used to mine Bitcoin, in order to implement a 51% attack on its chain.
Apart from the issues of hash powers and partial centralization, PoW has also proven to be an issue in terms of climate change and power consumption. Due to the complex cryptographic puzzles, high computing powers are required. For this, very high computing machines are required which draw huge amounts of electricity. This consumption contributes to climate change globally, and people are trying to come up with a more generalized algorithm which not only solves the centralization issue, but also the power issue. Although true randomization is almost impossible to achieve, in the idea case, a truly random algorithm would give equal opportunities to people for transaction validations and getting rewards as a result.