- We categorize PoW, hybrid and PoS as high, medium and low energy consuming blockchain consensus protocols.
- We employ portfolio analysis to explore if energy is a fundamental risk factor for cryptocurrencies.
- The hybrid consensus protocol generates significantly higher average returns than the others.
- We find that the cryptocurrency market is driven by the trust factor rather than the energy factor.
Cryptocurrencies employ different consensus protocols to verify transactions. While the “proof-of-work” consensus protocol is the most energy-consuming protocol, “proof-of-stake” and the hybrid of these two consensus protocols, which consume considerably less energy, have also been introduced. We employ portfolio analysis to explore whether energy is a fundamental economic factor affecting cryptocurrency prices. Surprisingly, our results suggest that, on average, cryptocurrencies employing proof-of-work consensus protocols do not generate returns that are significantly different from those that incorporate proof-of-stake consensus protocols. Even more surprising is that our results show that cryptocurrencies that incorporate the hybrid version of these consensus protocols generate significantly higher average returns than the other groups. A possible explanation for this phenomenon may be that the cryptocurrency market is still driven by the trust factor rather than the energy factor.
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