The electricity consumption and environmental footprint of blockchains

How blockchains work

To understand the energy consumption of blockchain technology it is important to understand how a blockchain works.

Why blockchains consume energy

The energy consumption of a proof-of-work blockchain is essentially due to the work of miners in solving the proof-of-work puzzle. The energy consumed to execute transactions when the block is minted is instead negligible compared to the proof-of-work use. In other terms, mining an empty block consumes the same amount of energy of mining a full block.

How much energy blockchains consume

This said, the energy consumption of proof-of-work blockchain is not negligible. Since all proof-of-work blockchains operate in a similar way, we focus on the main one, that is Bitcoin. We’ll investigate the energy consumption of Bitcoin with the help of the Cambridge Bitcoin Electricity Consumption Index (CBECI) [3]. The CBECI is an ongoing project created and maintained by the Digital Assets Programme (DAP) Team at the Cambridge Centre for Alternative Finance, an independent research institute based at The University of Cambridge, Judge Business School.

  1. Bitcoin’s closest and most referenced real-world analogue is gold. Interestingly enough, gold mining consumes 131 TWh, essentially the same as its digital counterpart;
  2. global air conditioning consumes 2199 TWh (16x more than Bitcoin), global data transmission networks consume 250 TWh, and global data centers consume 200 TWh;
  3. TVs and lighting in US each use 60 TWh, while fridges in US use 104 TWh;
  4. comparing to electricity consumption of entire countries, Bitcoin consumes a bit more than Ukraine (124.5 TWh) and a bit less the Egypt (149.1 TWh). US uses 3843.83 TWh, more than 29 times the use of Bitcoin;
  5. as a fun fact, Bitcoin’s electricity consumption could power all tea kettles used to boil water in the UK for 29 years.
Electricity consumption of the mining of physical gold and digital gold (Bitcoin). Source: CBECI

Environmental implications

However, electricity consumption and environmental footprint are not necessarily correlated. As explained on CBECI’s website:

Alternatives to proof-of-work

Is there an alternative consensus method that is as secure as proof-of-work and consumes less energy? A popular candidate is proof-of-stake.

Good practices

As outlined above, the main driver of blockchain electricity consumption is expected mining profitability, that is forecasted revenues minus costs. Revenues are determined by the amount of fees paid by senders of transactions as well as by the cryptocurrency rewards of mining which is directly influenced by the market price of the mined coin, while costs include the expenses for the mining hardware and that of electricity to run it. We have no control on most of these variables but, partially, the fees we agree to pay when we sign a transaction. As also suggested in [5], as individuals we can adopt some good practices:

  1. perform transactions using a low gas price. This can be done by tolerating a longer confirmation time or executing transactions during times of the day with lower gas demand;
  2. reduce gas usage. For example, lazy minting, adopted for instance on OpenSea for NFT minting, minimizes gas requirements by treating the creation and sale of an NFT as a single transaction. Moreover, blockchain programmers should strive to write efficient code when implementing smart contracts such that the execution of the code has lower computational complexity and hence smaller gas fees are required;
  3. when possible, use layer 2 solutions on Ethereum or alternative blockchains that already adopt proof-of-stake;
  4. stake money to Ethereum to become a validator or take part to a staking pool. This improves the security of the forthcoming to proof-of-stake version of Ethereum;
  5. purchase carbon offsets to fund activities that have a negative greenhouse gas balance, such as planting trees or increasing the commercial viability of renewable energy.

Key takeaways

We can sum up the take-home message as follows:

  1. the energy consumption of a proof-of-work blockchain (such as Bitcoin or, at the moment, Ethereum) is not negligible;
  2. blockchain energy footprint is linked to block production (mining) via proof-of-work consensus method and not to transaction processing;
  3. proof-of-work is fundamental to maintain the security of the blockchain system; it is a fact that major proof-of-work blockchains have not been successfully hacked so far;
  4. the main driver of blockchain energy consumption is expected mining profitability. This is mainly determined by the market price of the mined coin, the amount of fees paid by transaction senders, and the price of electricity used for the mining process;
  5. it is essential to distinguish between electricity consumption and environmental footprint. What ultimately matters for the environment is not the level of electricity consumption per se, but the carbon intensity of the energy sources used to generate that electricity;
  6. miners are energy nomads, attracted by renewable and waste energy that cannot be distributed or used in a cost-effective manner;
  7. alternative consensus methods, like proof-of-stake, can dramatically reduce the use of computation and hence energy for block validation; however, it is unclear to date whether they can replicate the same security assurances as proof-of-work.

Conclusions

But how much energy should a blockchain consume? How you answer that likely depends on how you feel about blockchain and how much value you think it creates for society. If you believe that blockchains offer no utility beyond serving as a technology to create financial Ponzi schemes, to launder money or commit other crypto crimes, and to support the diffusion of awful digital art and pesky collectibles and profile pictures, then it would only be logical to conclude that consuming any amount of energy is wasteful. If, instead, you believe that blockchain will build a new decentralized Web, where users fully own and control their own data, identity, and money, you most likely think that the consumed energy is extremely well spent.

References

[1] SuperRare Labs Team. No, CryptoArtists Aren’t Harming the Planet, 2021.

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data scientist generative artist blockchain enthusiast crypto art evangelist — linktr.ee/hex6c

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hex6c

hex6c

data scientist generative artist blockchain enthusiast crypto art evangelist — linktr.ee/hex6c