1. Energy Usage in Bitcoin and the Proof of Stake Green Renaissance

Bitcoin, and other second and third generation cryptocurrencies, are designed to disrupt the legacy fiat financial system. So why are they seldom compared side by side environmentally? Photo by Steve Johnson on Unsplash.

It’s long been suggested by both mainstream media and blockchain industry experts that the energy costs associated with mining Bitcoin, and other proof of work (PoW) cryptocurrencies are spiraling out of control.

This common assertion has been a bone of contention for Bitcoin and, in the public sphere at least, has tarnished the reputation of the wider blockchain industry.

The Bank of International Settlements asserted in June 2018 that blockchain had quickly become an “environmental disaster.”

Research published in May 2018 attempted to quantify the total energy costs of Bitcoin hash-calculations by various makes of mining machines, concluding that the current Bitcoin network consumes at least 2.55 Giga-Watts of electricity; with future projections increasing to an estimated 7.67 GW.

The author goes on to compare the current Bitcoin energy consumption with that of the country of Ireland, which is only slightly higher at 3.1 GW. But is this really a fair comparison to draw?

“The global CO2 footprint of Bitcoin mining was just 0.66 million tonnes, compared to some 6.7 million tonnes produced by fiat coin and paper currency.”

Whilst scrutiny has traditionally been focused on the energy costs of cryptocurrency mining compared to a single nation’s energy needs, few researchers have sought to compare the energy costs of Bitcoin to the very thing it primarily aims to disrupt — worldwide fiat currency.

Herein lies the proof of work conundrum; on the surface it seems PoW mining is a dirty business, using seemingly vast amounts of power to mine new blocks; though in reality in their intended capacities as global currencies, they could offer a far greener alternative to physical coins and notes.

A comprehensive working report published in 2015 synthesized existing data to show that in contrast to the current narrative, the global CO2 footprint of Bitcoin mining was just 0.66 million tonnes, compared to some 6.7 million tonnes produced in the traditional minting & printing of fiat coin and paper currency.

In monetary terms, associated Bitcoin mining costs total $0.375 billion annually, in contrast to an estimated $28 billion cost associated with fiat currency production. By these metrics alone, it’s clear that associated Bitcoin costs in terms of both emissions and financially, are currently orders of magnitude lower than in the production of traditional fiat currency.

Although it’s rarely discussed when criticizing blockchain, physical fiat currency requires mining, forestry, minting and processing too. Photo by Dominik Vanyi on Unsplash.

Although these figures will clearly grow with increased adoption of either Bitcoin or another PoW cryptocurrency, we can still conclude that digital currencies may in fact confer significant energy benefits compared to the global cost of producing physical coins and notes. However, an obvious caveat is that Bitcoin, by definition as digital currency, requires access to technology which fiat currency does not.

However, though first-generation cryptocurrencies typically began with PoW mining, they certainly do not end there; and within the burgeoning blockchain space, a green renaissance is already underway — ‘Proof of Stake’.

“PoS systems theoretically put no artificial computational demands on the stakeholders, resulting in a significant decrease in energy consumption”

Proof of stake (PoS) consensus algorithms are a far less energy intensive way of reaching consensus on blocks than traditional PoW mining. As a very basic overview, instead of mining blocks using energy intensive mining hardware to solve cryptographic puzzles, PoS randomly selects miners/staking participants according to their stake in the platforms native token which they possess.

Under PoS consensus, participants in staking are rewarded for maintaining the blockchain, with their rewards being proportional to their stake. Conversely, participants are penalized for acting dishonestly within the protocol.

The specifics of PoS have gone through many iterations, and the implementation of functional PoS is a matter of ongoing research for many blockchain projects wishing to distance themselves from PoW.

Importantly, PoS systems theoretically put no artificial computational demands on the stakeholders, resulting in a significant decrease in energy consumption; whilst maintaining the rigorous security guarantees one expects from PoW systems.

Whilst concerns abound regarding energy consumption of PoW cryptocurrency consensus algorithms, are blockchain’s detractors drawing the correct comparisons?

It is easy, and no doubt appeals to sensationalist media, to compare cryptocurrency PoW mining with the energy requirements of small nations; however, as a means of decentralized global exchange, it is more accurate to compare its impact with that of traditional fiat currency.

Furthermore, it seems that in the near future, when blockchains begin their transition to PoS consensus, such as Ethereum’s Casper protocol, or the third-generation blockchain Cardano’s Ouroboros protocol, we will certainly see a marked decrease in energy consumption associated with mining new blocks.

Therefore, PoS implementation will likely be a significant step in ‘greening’ the image of the blockchain industry, resulting in both a significant decrease in operational costs, and arguably more importantly, a drastic reduction of blockchain associated emissions.

Whether intentional or as a natural evolution of blockchain technology, a ‘green renaissance’ is underway ushered in via proof of stake consensus mechanisms; improving both public perception of the blockchain industry, and potentially expediting widespread adoption.