Blockchain and our planet: change is possible
After exploring the reason blockchains and cryptocurrencies use so much energy in our first article and discussing who is responsible for this in our second article, it’s now time for some good news: change is possible.
Validating the blockchain uses a lot of energy
In our first article, we discussed the importance of consensus mechanisms for operating a reliable blockchain. In short, the consensus mechanism is a way to validate the new block of data being added to the chain. There are multiple ways to do this on a decentralized network, but the main mechanism used so far has been Proof of Work (PoW).
However, this particular consensus mechanism, when used in combination with a consistent time interval at which new blocks can be added to the chain, is the cause of the practically endless energy use of current cryptocurrencies. As long as there is incentive to do so, miners will add additional computational power to do this “work”, increasing the energy use to keep the blockchain operational without significantly affecting its functionality or security.
Ethereum shows that there is another way
Until recently, all major blockchains used the Proof of Work (PoW) consensus mechanism. But then, in September 2022, the second-largest cryptocurrency blockchain, Ethereum, switched its blockchain over to a different approach: the Proof of Stake (PoS) consensus mechanism.
As soon as the Ethereum blockchain made this change, its yearly energy use dropped a whopping 99.98%. From roughly 80 TWh/year to below 0.01 TWh/year. That’s a drop in energy use almost as big as the yearly energy use of Belgium, achieved from one day to the next. Estimates of the resulting reduction in greenhouse gas emissions vary based on the assumed energy mix, but are estimated to be in the range of 11 million tons of CO2eq. And all of that without affecting the operation of the blockchain itself.
So how does Proof of Stake work?
While Proof of Work relies on a large network of computational power to reach consensus on new data blocks, Proof of Stake relies on staking cryptocurrency capital – putting a certain amount of cryptocurrency up as collateral. A network of validators each stake a significant amount of Ether, the native cryptocurrency of the Ethereum blockchain. This stake is set at starting value of 32 ETH, which has a current value of roughly €40.000. The validators then participate in proposing new blocks and validating blocks proposed by others.
New blocks require a two-thirds majority amongst the staked cryptocurrency to get approved. Proposing an invalid block means your staked cryptocurrency gets destroyed, and consistently validating invalid blocks comes with a penalty. In contrast, consistently participating in proposing and validating a correct blockchain is rewarded with cryptocurrency and increases the validator’s stake, meaning the weight of their validation vote increases as well.
How about security?
The Proof of Work consensus mechanism made tampering with the blockchain practically impossible due to needing to control at least 51% of the computational power in the mining pool. This is no longer the case with the Proof of Stake mechanism. However, it has been replaced with needing to own at least 51% (but really more than 66%) of the staked Ether. Experts argue this is even harder to achieve, due to the self-controlling nature of the network.
The capital required to achieve the needed majority to reliably tamper with the blockchain is high enough to make tampering extremely unlikely. At the current value and amount of Ether staked, the cost of achieving a 51% majority is just under $19 billion USD.
In addition, the blockchain can always revert to a valid earlier version. With this in mind, plus the social oversight, built-in penalties and the possibility to completely destroy the stake of a bad actor, it is very difficult (and expensive) indeed to make malicious moves.
There’s a more environmentally friendly future for blockchain
So far, the Ethereum blockchain is the only large blockchain that has switched over to this new approach. Bitcoin, the biggest blockchain in the world, still operates on the Proof of Work mechanism. Its operation continues to use large amounts of energy per year, rivaling the energy consumption of a small country (estimated at 130 TWh/year, depending on the current value of Bitcoin).
The Proof of Stake consensus mechanism is seen as even better than the security of Proof of Work. It also offers a drastic reduction in energy use. That means there’s hope for the future of blockchain technology without an enormous environmental impact.
This was the third part of our series on blockchain technology. In the first part, we looked at why blockchain has such a high energy use. In the second part, we looked into allocating the energy use amongst users to determine who is responsible for the impact.
My background in industrial design made it clear to me that the current system of consumption and disposal cannot be maintained in the long run. I quickly became interested in quantifying sustainability, so that well-supported decisions can be made in our move towards a more sustainable world. LCA provides the ability to focus on the facts.