Measuring the Emissions Footprint of Proof-of-Work Blockchains
By Samuel Huestis, Associate, Climate Intelligence at RMI
Bitcoin made major headlines back in November 2021 when its price reached a new all-time high close to $69,000. It has recently made headlines again, as the price slipped into the $30,000s toward the end of January 2022 before climbing back into the $40,000s this month. Yet despite the price slump, another aspect of Bitcoin has remained high: its hashrate, and therefore, also its energy consumption (which rivals that of Norway).
That energy consumption is closely tied to Bitcoin’s consensus approach: Proof of Work (PoW). But while it may be the world’s best-known example of a PoW blockchain, it is hardly the only one. Ethereum 1.0, Dogecoin, and others also use PoW for their networks. PoW blockchains are known for their security, but equally so for their energy consumption (a byproduct of how PoW works in the first place). That is a growing problem.
With climate change recognized as an existential threat, governments, industries, and corporate actors are working to reduce energy use and emissions in keeping with international agreements to keep warming below 1.5C globally. While crypto’s emissions are smaller than large industries such as steel, concrete, and petrochemicals, crypto — like any other industry or sector around the world — is challenged to clean up its climate footprint, fast.
But therein lies a challenge. For as long as large, popular crypto networks (e.g., BTC) use PoW, addressing its growing electricity consumption and associated carbon emissions is going to be an important issue. Yet tackling that challenge starts with understanding how much energy such networks consume and how much emissions they cause. That has been hard to pin down. Here is why (and what to do about it).
Understanding PoW and “wasted” energy
PoW is a consensus protocol, first developed by Cynthia Dwork and Moni Noar as a tool to deter spam email. Since then, these algorithms have been adopted by cryptocurrencies to verify transactions and account balances. Cryptocurrencies have adopted these algorithms due to their ability to offer solutions to notable problems in computer science, allowing for security and relative decentralization.
The “work” in PoW is done by cryptocurrency “miners,” who commit computational resources to guess a “nonce,” or number only used once, that enables them to verify transactions that are added to the block in a blockchain. Miners who do this are given cryptocurrency as a reward. As more coins are mined the difficulty of guessing the solution is increased, requiring greater “work” or computing resources to solve. The fundamental security of PoW cryptocurrencies centers on this simple but essential function.
The Crypto Climate Accord (CCA) was convened to direct the innovativeness of actors within the crypto space to rapidly decarbonize the crypto industry, setting an example for other industries and developing tools for decarbonization along the way. One important area of focus for us is helping the industry understand the emissions associated with PoW networks’ energy consumption. Our recently published guidance document is an important start — including accounting for the “wasted” energy in PoW networks.
In PoW algorithms, miners compete to add blocks to the blockchain, running vast amounts of computing equipment to increase their chance of guessing the correct nonce first and receiving cryptocurrency as a reward. This means that most of the energy used within the system is unsuccessful for any given block.
Understanding the system-wide emissions of cryptocurrency requires accounting for the energy being used by miners whose work does not contribute to the minting of new coins. In practice, this means that the associated emissions of any one coin are the combined emissions of all miners within the system that worked to guess the correct nonce for a particular block of transactions. Decarbonizing single mining operations then will not have a large effect on the system’s greenhouse gas (GHG) footprint, as the total emissions stay roughly the same.
As PoW systems gain more value, more energy is wasted by miners who do not receive any reward for expending that energy. But this excess computing power is tied to the core functions of these cryptocurrencies. Because of this, the energy usage associated with PoW- based cryptocurrencies is likely to keep growing, at least as long as the price of these currencies continues to rise.
Measuring PoW energy use and estimating associated emissions
Large amounts of computing power, and the electricity to fuel it, form the backbone of PoW consensus algorithms. As important as it is to understand embedded emissions in steel and concrete, so too is it crucial to accurately account for emissions in cryptocurrencies.
It is important then to have consistent, accurate methodologies to measure electrical usage. The CCA Guidance doc outlines two primary methodologies, the Cambridge Bitcoin Electricity Consumptions Index (CBECI), and the Digiconomist Bitcoin Energy Consumption Index.
Both approaches have challenges associated with them. Uncertainty in hashrate reporting, lack of data on mining revenues and amount spent on electricity can introduce wide ranges for any final calculation. Additionally, the location of miners is often not known, and can be obfuscated using VPNs or proxy networks. All these challenges make it difficult to comprehensively account for the emissions associated with proof of work crypto networks.
But as the industry gains a better, more nuanced, and accurate understanding of energy consumption, next comes determining the overall emissions that occur as a result of network activity. Accurate data is crucial to being able to estimate the energy use with certainty. The emissions associated with electrical generation can vary based on the country, state, and even city that mining is being done in, as well as the time of day.
The total emissions are equal to the proportion of electricity consumption by location, multiplied by a given emissions factor for that location, summed. Key to this calculation then, is the accuracy of that emissions factor. There are numerous choices, depending on the level of location accuracy, as well as the location itself. Marginal emissions factors provide the best estimate and are available in real-time via the WattTime’s API in North America, most of Europe, and Australia.
Reducing emissions
To meet the CCA’s goal of net-zero emissions from electricity consumption by 2030, it is necessary to find ways to reduce emissions in the global crypto industry. Alternative consensus methods, such as Solana’s proof of history, XRP Ledger’s Ripple Protocol Consensus Algorithm (RCPA), Ethereum’s forthcoming proof of stake and proof of authority mechanisms such as the Energy Web Chain, offer similar security while significantly reducing electricity consumption. XRP boasts electrical use per transaction orders of magnitude lower than proof of work algorithms, more on par with traditional payment providers such as Visa or Mastercard. This usage is significantly less than paper money, and provides a potential path to faster, cheaper, and greener payments for the future.
Since Ethereum is the second largest cryptocurrency by market capitalization, it is worth noting that the network is in the process of transitioning to a proof of stake algorithm. This transition is estimated to reduce the per-transaction energy usage of Ethereum by 99.95%, but is complicated and has taken time. A parallel, proof of stake chain called Beacon has been running, which will eventually be merged with Ethereum mainnet. The addition of sharding, and the replacement of Ethereum’s widely used EVM system with a new system, Ethereum WebAssembly (Ewasm), has added complexity to the migration. Ewasm will replace the EVM as the state execution engine of the Ethereum network and is expected to be one of the final aspects of Eth 2.0 to be integrated.
For networks that utilize proof of work, miners’ options for lowering emissions include increased efficiency, in the form of hardware or load shifting, and lowering the footprint of their electrical usage. The latter can be done by re-locating to areas with lower marginal emissions, or through the procurement of renewable electricity.
The CCA is currently working with members to publish a renewable energy procurement guide, that will help actors in the crypto space make informed decisions about renewable energy purchases. As with any industry, grid decarbonization is paramount to any effort to lower emissions, and the Procurement Guide will seek to direct actors to renewable energy options with proven additionality.
CCA tech solutions, such as the tokenization of energy attribution credits (EACs), will bolster this effort by facilitating the purchase of high quality EACs from verified providers, allowing actors to prove environmental claims through a public blockchain. One such example of these efforts is Zero Labs, a startup that recently spun out of the EWF (Energy Web Foundation) that aims to develop solutions to scale climate action by making it easy to procure renewable energy and prove it.
Conclusion
PoW algorithms remain the dominant consensus mechanism in crypto. While they have been useful in establishing security and value while maintaining decentralization, they require large, and ever increasing, amounts of energy to maintain. Most of the energy used within these systems, is used by miners who do not receive a reward for their energy use, and as such can be seen as “wasted.” All crypto networks — like all industries these days — need to understand and reduce their climate footprints. For as long as PoW remains a dominant consensus approach in the crypto / blockchain world, it will command a lot of attention to help reduce its energy use and carbon footprint.
Alternatives to proof of work algorithms do exist, and large established players, as well as ambitious newcomers, have recognized this fact. For PoW networks to remain relevant, they should seek to decarbonize. But they cannot do that until they understand their climate footprint in the first place.
Despite some best efforts (e.g., Cambridge), the industry’s view of the reality remains cloudy at best. We need to advance a better understanding of energy use and associated emissions (across all crypto). Without that foundation, we cannot meaningfully move toward making crypto green. The CCA is on a mission to achieve this goal as soon as possible, through facilitating renewable energy procurement, tech solutions, and a dedicated community of climate-minded crypto stakeholders. Join us in our efforts to make crypto green.
