Ethereum: Navigating the Blockchain’s Sustainability Versus Profit Dilemma
by Ernesto Dal Bó and Guo Xu
The popularity of Blockchain—and its application to cryptocurrencies in particular—has soared in recent years. Blockchain platforms are completely decentralized, relying on networks of participants to securely validate transactions without a central authority. Existing cryptocurrencies use a validation process called Proof of Work (PoW), a form of cryptography that requires a network of “miners” to commit their own computing power by solving complex cryptographic puzzles. Miners who create and publish new blocks are rewarded. But there is now a growing concern that the amount of electricity required to run PoW networks has become unsustainable: the Bitcoin network, for instance, requires the same amount of electricity as a small country. Vitalik Buterin, the co-founder of Ethereum, has proposed a new validation model called Proof-of-Stake (PoS). This case explores the challenges associated with incentivizing participants to transition in a more sustainable, but unproven new model.
Berkeley Haas Case SeriesFollowThe Berkeley Haas Case Series is a collection of business case studies written by faculty members at the Haas School of Business. Cases are conceived, developed, written, and published throughout the year, on subjects ranging from entrepreneurship and strategy to finance and marketing. Each case includes a teaching note for use in the classroom.