This is a series of articles exploring the different problems that current blockchains face from the technical point of view, and how some projects are trying to solve them.
How much coal do your Bitcoin holdings cost?
How much uranium was used to create your Ether?
These may be the weirdest questions that someone has ever asked about your crypto portfolio, but there’s a reason for them.
You may not be aware, but the two most prominent cryptocurrencies sitting in your wallet come with a high environmental cost.
Any network operating under Proof-of-Work consensus may be contributing to killing the planet as much as diesel engines or open coal mining.
It may sound counter-intuitive at first glance:
How can an asset that doesn’t exists physically be having such an impact on the environment?
Luckily for us, History is full of examples of the unintended consequences of human greed.
Let’s go back 160 years to illustrate this with an example.
Lessons From the Gold Rush
During a cold morning at the beginning of 1848, a carpenter named James W. Marshall found flakes of surface gold near Sierra Nevada, California.
Along with his partner, they quietly exploited the discovery as much as they could, but soon newspapers started reporting their findings.
In March 1848, California had a beautiful landscape and a settler population of about 700. As news spread, thousands began arriving in the area looking for the shiny metal.
By the end of 1849, the non-native population reached 100,000 settlers, the vast majority of them dedicated day and night to dig the ground, break stones and carve riverbeds. New towns sprung in the area to accommodate the rising population.
Hardworking miners could process several cubic yards of ground a day. At this time, the individual could hope to strike it rich, and quite a few lucky miners did.
By 1850 most of the surface gold had been mined, so extracting the metal became increasingly complicated. At the same time, competition amongst miners kept increasing, with more people arriving searching for fortune.
New techniques like hydraulic mining and blowing up big rocks with dynamite destroyed mountains and changed the course of rivers and streams. Industrial mining caused cutting down entire forests to fuel machinery and human activity.
The Gold Rush had many other unintended consequences:
- Plenty of businesses like saloons and newspapers had to close because they had no staff or customers, as every able person was searching for metal.
- Gold dust became the only de facto currency, leading to a rise of crimes and thieving.
- The “get rich quick” mindset gave great popularity to gambling, with cities like San Francisco declaring a “gambling epidemic.”
- Native Americans were driven away from the ancestral territories by force.
You can see what happens when a valuable and scarce asset goes mainstream.
We, humans, tend to be greedy, and greed leads to the destruction of all its surroundings.
The Bitcoin Rush
A decade ago began the biggest economic competition in human history since the 1849 Gold Rush.
Satoshi Nakamoto unleashed the Bitcoin beast, proposed initially as digital cash, but that soon turned out to be perceived and traded as digital gold.
Adventurers willing to obtain the precious digital asset had to work for it, solving out difficult random cryptographic puzzles to seal the blocks.
To incentivise the competition for years, Mr/Ms Satoshi established a variable difficulty to keep block time close to ten minutes, while the rewards hiding in the blocks will cut in half every few years.
Along with a finite supply of 21 million bitcoin, this deflationary model creates artificial scarcity. The Bitcoin Rush was on.
The first digital miners used their computers to solve blocks and obtain Bitcoin, rather than a pick and shovel. At the beginning of the competition, you could get tens of bitcoin a day just using a laptop, but this didn’t last very long.
With more miners joining the race, difficulty increased. More and more computational power was required to obtain the block rewards.
Bigger computers started mining, with higher technical specifications. Miners started grouping up into “mining pools”, and professional mining farms began operating. Bigger machines meant higher energy consumption to power the mining operations, which itself impacted the market price of Bitcoin.
Because it was more expensive to mine, its price increased. Because its price increased, more people wanted to own the asset. The fixed supply and growing demand caused a parabolic surge in miners, shooting energy consumption through the roof.
By 2014, after Bitcoin price crashed, which cause the number of miners to stabilise around 100,000 according to Neighbour Pool Watch.
In 2017, Bitcoin was on the rise, driving other cryptocurrencies up with it.
More and more people joined the Rush, with companies like Nvidia and Bitmain marketing hardware specifically designed to mine Bitcoin, Ethereum and other cryptos.
Professional Bitcoin mining companies translated their operations to colder zones like Sweden, Siberia or Tibet to offset the cost of cooling down its never resting mining rigs.
Others establish their farms in countries with subsidises electricity like Venezuela or Iran.
Like the 1848 Gold Rush, all this digital mining has a massive unintended consequence: the environmental costs.
Is PoW Killing the Planet?
Everyone in a Proof-of-Work consensus network has to update regularly a copy of the entire blockchain, which makes almost impossible to achieve global scale. The more nodes connected, the more secure and bloated the network gets.
Over time, the network rewards proportionally the work done, and bigger workers get paid more often. Increasing puzzle difficulty also leads to big players to use sophisticated equipment, which requires more energy to run.
Some of the early Bitcoin miners pointed out the energy issue right from the beginning:
During the first months of its existence, the price of Bitcoin was established over-the-counter between miners and non-miners who wanted to own it.
The only way to price it reasonably back then was looking at how much impact obtaining bitcoin had in the electricity bill of the miners.
Proof of Work is one of the most secure ways to operate a distributed network, but security and decentralisation come with two costs: one visible, one hidden.
The Obvious Cost: Energy
As Bitcoin network energy consumption increases by the year, it surpasses the collective energy bill of more and more countries.
By 2018, Bitcoin and Ethereum consumed more energy that Switzerland, a country with 10 million inhabitants.
Here’s a cool graph illustrating Bitcoin’s energy consumption:
Next time someone asks you “why has bitcoin any value?”, shovel this graph in their faces.
Bitcoin energy consumption charts show a steady increase over time. If Bitcoin maximalists’ theory ends up being right, and the price keeps rising during the next decade, we can expect the electric bill to follow along.
Far from the popular misconception of digital money, Bitcoin has a massive environmental impact, consuming as much energy as millions of Western citizens.
If we add the energy bill of Ethereum and all the other PoW networks, we are contemplating an unsustainable way of operating.
Some are already noticing this unsustainable path, like Ethereum’s founder Vitalik Buterin, who called for swapping from Proof-of-Work to Proof-of-Stake (PoS).
Others have proposed carrying out transaction off-chain, like the Lightning Network on Bitcoin. This solution allows the network to be lighter, partially alleviating the amount of computational power needed to run it.
These fixes may help contain the costs of the networks, but they won’t eliminate them. Plus, these proposed methods have many detractors for different reasons.
Energy is the visible cost of PoW networks, but there’s more.
The Hidden Cost: Electronic Waste
An unintended consequence of PoW competition is the need for continually renewing mining equipment.
In one hand, the hardware wears off due to use. Bitcoin mining devices never stop since they are connected to the rig, accelerating the product lifecycle due to exhaustive usage.
On the other, the increasing difficulty in solving the cryptographic puzzles translate into a hardware competition: the miner with the best equipment wins more rewards than those with older, less performing hardware.
This race to have the best mining hardware is generating an astonishing amount of e-waste.
Is estimated that Bitcoin mining is generating over 8,000 tons, just during 2019.
Like the 1849 Gold Rush, the PoW competition has had many unintended consequences: Political intervention to regulate mining activities in countries with subsidised electricity, electric companies charging Bitcoin miners a premium for their consumption, power outages, centralisation of the bitcoin network around a few big miners.
Proof-of-Work consensus has been a game-changing advance bringing decentralised networks to life and make the peer-to-peer transfer of value possible.
Unfortunately, it comes with a high cost for the environment, making digital assets as unsustainable as precious metal mining during the Californian Gold Rush.
Our societies are becoming more digitalised and more environmentally conscious at the same time. The best example of this is the recent Extinction Rebellion movement raising awareness about the climate emergency.
I can’t see Bitcoin or Ethereum becoming the chosen way of value transfer for the newer generations, which would likely refuse an asset that comes with such an environmental downside.
Off-chain transactions and new, lighter consensus models are emerging, and the transition to them is inevitable.
Blockchain projects that design their consensus algorithms minding the environment will have both cost-efficiency and society backing them.
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