This study investigates the impact of transitioning from the proof-of-work (PoW) to the proof-of-stake (PoS) consensus protocol on the relationship between cryptocurrency volatility and energy shocks.
We exploit the random nature of the transition to the PoS consensus algorithm as a quasi-natural experiment. We analyze this issue for the volatility processes of four digital currencies with high market capitalization using GARCH models.
Our cross-sectional findings suggest that after the transition to the PoS consensus protocol, cryptocurrency volatility becomes significantly less responsive to energy market shocks.
The findings of this study advocate for the migration from the energy-intensive PoW consensus protocol to the more environmentally sustainable PoS protocol. Moreover, this study advances the literature on green finance by documenting a strong case for cryptocurrency stakeholders to switch to the PoS protocol.
