How to solve blockchain’s energy consumption problem
While the wild rise and fall of bitcoin prices in late 2017 generated a heavy stream of ‘bubble mania’ stories in tech, finance and even mainstream news outlets, the cryptocurrency also found itself a target of criticism for its growing energy footprint.
Blockchain acquired its ‘energy hog’ label after Digiconomist’s Bitcoin Energy Consumption Index calculated that the digital currency’s mining process was — according to its most recent estimate — using as much electricity as the entire nation of Algeria: more than 57 terawatt-hours annually.
And with so much bitcoin mining concentrated in China, which remains highly dependent on coal, that finding suggested cryptocurrencies can create a lot of environmental and climate damage.
However, there are a few caveats to those findings. One, as even Digiconomist acknowledges, is that the bitcoin energy index is based on a few assumptions rather than on actual energy consumption data, although the site also notes many of those assumptions are on the conservative side.
The second caveat is that bitcoin’s large energy footprint fluctuates depending upon price. Miners are willing to pay more for equipment and associated energy costs when the financial rewards are higher. As a result, consumption was bound to be higher when prices were flirting with $20,000 a coin, as opposed to the current $8,000-a-coin range.
Thirdly, there are alternatives to the energy-intensive proof-of-work algorithm that is currently used to mine bitcoins and some are already being used by other cryptocurrencies.
The most promising alternative at the moment is proof of stake, which — like proof of work — can provide consensus that each bitcoin transaction is valid and doesn’t involve double-spending. Proof of stake uses validators rather than miners to confirm transactions, with validators determined based on how many bitcoins they already own and no block reward for mining (instead, the reward is transaction fees).
Validators are chosen deterministically and new coins don’t have to be mined into existence through intensive computations, so the process of reaching consensus involves less time and energy.
Beyond proof of stake, there are other alternatives to proof of work: proof of burn, proof of capacity, proof of activity and proof of elapsed time. However, proof of stake appears closest to seeing real-world implementation in the wider blockchain world.
In November, for example, Ethereum creator Vitalik Buterin said his currency’s community might soon switch to a proof-of-stake system to improve sustainability.
Several other cryptocurrencies already use proof of stake in some form, including Peercoin, Nxt, BlackCoin and Decred.
Peercoin launched in 2012 and uses a hybrid system with both proof of work and proof of stake. In their founding paper for Peercoin, creators Sunny King and Scott Nadal said their system was explicitly designed to avoid the sustainability problems of bitcoin, both financial and energy-related.
“When the proof-of-work mint rate approaches zero, there is less and less incentive to mint proof-of-work blocks,” they wrote. “Under this long-term scenario, energy consumption in the network may drop to very low levels as disinterested miners stop mining proof-of-work blocks.
“The bitcoin network faces such risk unless transaction volume/fee rises to high enough levels to sustain the energy consumption. Under our design even if energy consumption approaches zero the network is still protected by proof-of-stake. We call a cryptocurrency long-term energy-efficient if energy consumption on proof-of-work is allowed to approach zero.”
Another solution to the blockchain energy consumption problem might lie with hardware rather than software. In 2017, Cornell University researchers proposed a proof-of-useful-work system for resource-efficient blockchain mining based on Intel’s Software Guard Extensions. They claimed their proposal improved on Intel’s own Hyperledger Sawtooth blockchain code by encouraging use of the fastest processors possible for block-writing.
