Exactly how sustainable is Bitcoin? What about the other proof of work cryptocurrencies? They have revolutionized the way we think about money and the financial institutions that control it: a truly trustless economy is possible, with no third party required for people to make monetary transactions. Recently Bitcoin’s 24-hour trading volume surpassed $20 billion, all without any bank or organization’s approval or oversight. With BTC on the rise again, it seems that the blockchain is here to stay.
This is not to say that all is well in the cryptoverse. A hot topic—given the growing concern for climate change and environmental degradation—is the monumental amount of energy necessary to mine Bitcoin. The protocol used to create new blocks, called proof of work, does require massive amounts of electricity, but there are alternatives. This is a serious issue amongst leaders in the industry, as well as environmentalists, and developers are constantly working on new algorithms to find a better, more efficient alternative to Proof of Work. First, it is useful to take a closer work at PoW and gain a better understanding of the technology.
Proof of Work Energy Use
Originally published in 1993 by Cynthia Dwork and Moni Naor, but not called Proof of Work until Markus Jakobbson and Ari Juels in 1999, PoW is the algorithm that Satoshi built his revolutionary cryptocurrency around. PoW is the means by which new blocks are created and added to the blockchain. This creates the immutable ledger that makes Bitcoin, as well as Ethereum and other coins, possible and introduced cryptocurrencies to the world.
Proof of work provides the P2P network with a means to reach consensus and add new transactions to the blockchain while at the same time ensuring security. New transactions are bundled into blocks; these blocks are not immediately added to the blockchain however: first, they must be verified by special nodes on the network called miners. These miners compete to solve a complex mathematical puzzle involving the hash (solution) of the previous block. Whoever completes the puzzle first is rewarded with some set coin value. Other users on the network are able to easily verify the legitimacy of the new block thanks to the PoW algorithm then the transactions within the block are approved and the race starts all over again.
The Changing Technology
This algorithm requires miners to put in work in order to cash in on rewards, but since not all machines are equal, an arms race has developed among miners to create and utilize the most efficient machines. At the dawn of Bitcoin, miners were able to use standard desktop CPUs to mine coins, since competition was so low. As the network grew it became imperative to make use of more powerful machines and now most mining takes place on ASICs (application-specific integrated circuits), machines that are built with one objective: solving PoW puzzles.
Proof of work does function to prevent attacks, specifically denial-of-service attacks, and the security of the network is its greatest feature. While it is this large pool of machines that create the security of the network, it is also this massive number of miners that are constantly driving up the competition and leading to the current conversation regarding energy consumption. This arms race has led to the development of large scale mining farms that consume huge amounts of electricity and have become a hot topic in both the cryptosphere and environmental conservation circles.
Is Proof Of Work Mining Unsustainable?
Since proof of work requires computational power to solve the puzzles and create new blocks for the blockchain it only makes sense that miners try to use the most powerful and efficient machines. It could be argued that proof of work is deliberately designed to consume large amounts of energy: it is this required energy that helps secure the network. With the rewards given to the first node to solve the puzzle, with no consideration to factors outside of the rules of the algorithm, users have continued to expand their mining operations and the electricity required to function has increased proportionally.
How Much Energy Does Proof Of Work Mining Use?
How much of the world’s electricity is actually going to crypto mining? This is an object of contention among journalists, researchers and crypto enthusiasts and has proven to be an elusive figure. Due to the distribution of miners, and the inherent difficulty in locating them, obtaining a reliable number for the network’s energy consumption is not easy. One source estimates that as of January 2018 the Bitcoin network used 18.4 Terawatt hours per year. While these figures are massive, the numbers are often used to shock readers. In comparison to a small nation like Iceland, these figures seem massive. Iceland only uses 18.1 TWh/year. However, in comparison to one hydroelectric dam, the Three Gorges Dam in China which produces 90TWh/year, the numbers don’t seem so staggering.
Bitcoin’s Environmental Impact
Despite that the figures and graphs can be manipulated to prove any number of points, the fact remains that the BTC network consumes massive amounts of energy and this raises some serious questions. One outcome of large scale crypto mining is the strain it can put on power grids. In their paper, “Proof of Blackouts? How Proof-of-Work Cryptocurrencies Could Affect Power Grids”, Ullrich et al. propose that there is potential for crypto mining to destabilize power grids due to the large loads used. Power grids require continuous frequency stability and Ullrich argues that if a large number of mining operations switched from mining to idling all at once this equilibrium could cause blackouts across entire grids. While there have yet to be any reports of this taking place it is still a subject of serious research and discussion.
The environmental impact of these large scale mining farms is also worthy of discussion and has continued to gain attention outside of the cryptosphere. The greatest problem with mining and its impact on the environment is the massive carbon footprint it creates. While it is true that much of the large mining operations in coal heavy countries (China specifically) do take advantage of renewable energy sources, namely hydroelectricity from dams, they are still inextricably tied to coal.
Some estimates place 80% of Chinese miners in the hydro rich Sichuan region where renewable energy is the primary means of power. However, the situation is a bit more complicated. These dams function based on the cycle of seasonal rains, but mining doesn’t stop when the dam runs out of water. As the hydropower subsides coal is used to balance loads and keep output high. It is this supplementary source of electricity that has environmentalist worried. One study argued that crypto mining alone could push the global temperature up 2˚C, although this seems high. However, with estimates of BTC’s CO₂ emissions 22 megatons per year, roughly the same as the Kansas City Metro area, the environmental impact of these operations is worth continued examination.
Proof Of Work vs Proof Of Stake Energy Consumption
The situation is serious enough that many in the crypto community have argued that if cryptocurrencies ever want to replace the dominant financial systems (Visa, traditional banking etc.) an alternative to proof of work is necessary. The high cost of mining and low transaction rates offered just cannot compete. One solution is the adoption of proof of stake.
Proof of stake is another algorithm that can be used to approve transactions and add blocks to the blockchain. While PoW achieves this through high computational power and a race to solve puzzles, proof of stake creates consensus on the blockchain-based on the stake in the network. Nodes that approve blocks are called forgers instead of miners and are chosen using a pseudo-random selection process to determine the user to validate the next block.
Nodes acting as forgers must put an amount of crypto on the network as their stake. The stake, along with other factors such as how long the stake has been on the network, acts as the means to determine who approves the next block and receive the rewards. In these systems, forgers are usually rewarded with the transaction fees each user pays. The more stake a forger has the more likely they are to be chosen to validate the next block. The benefit of PoS is that it does not require the high computational power, and electricity necessary, to function. While proof of stake has its own set of limitations and problems energy use is not one of them.
Improving Bitcoin Mining Efficiency
Bitcoin has been developing a system to take some of the load of transactions off the blockchain and free it up for major transactions. The Lightning Network is a way to increase transaction rates and potentially reduce the energy strain caused by proof of-work mining. The Lightning Network makes off-chain channels for small, regular transactions, reducing the overall number of transactions taking place and decreasing the total blocks mined. While reducing energy consumption is not the main goal of the Lightning Network it could be a potential by-product of implementation.
How Ethereum Is Changing
Vitalik Buterin, the man behind Ethereum, and his team have been working on their own algorithm that takes advantage of the proof of stake model. Casper is their take on PoS. The Casper update will take place in two steps. The first step will be the addition of a proof of stake layer over top of the current proof of work algorithm: the PoW system will continue to run with PoS checkpoints added along the way to ensure the functionality of the new algorithm. Slowly, Casper will incentivize a switch to a fully functioning PoS system through the use of a difficulty bomb that will push users over to the new system.
Ethereum plans to use the Casper system to solve all of the problems that the PoW model presents, with energy consumption being an important element. While Ethereum does not have the same volume as Bitcoin, a switch to PoS by them would seriously reduce the total energy consumed in crypto mining operations. Casper also aims to solve the issues of centralization through large mining operations monopolizing the production of crypto as well as increase scalability making a faster, cheaper network.
Time For A Change?
While exact numbers are hard to come by, and there are varying opinions on the true environmental impact of crypto mining, it cannot be denied that PoW is an intentionally wasteful means to reach consensus on the blockchain. While it served its purpose well at the onset of the network, as more and more nodes joined, the energy requirements grew exponentially until now we have reached a point where miners are using energy at the nation/state level.
It is no secret that proof of work is not the best way to take advantage of blockchain; leaders in the industry are actively looking for a replacement. The environmental impact of these technologies cannot remain as externalities as they have in so many other industries. Cryptocurrencies are meant to be an alternative not only to traditional monetary systems but traditional systems of thought and community; an alternative to the centralization of wealth and power that has led the world to its current state. The leaders of the crypto industry can use the power of these technologies to bring the environmental well-being of the planet into the equation and truly affect change.
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