Blockchain and our planet: why such high energy use?
Blockchain and cryptocurrencies are all the rage, with their many exciting application possibilities. But they also come with a significant environmental impact, mainly related to energy use. This is the first part in a series where we explore the environmental considerations regarding blockchain technology.
What is blockchain?
Blockchain is a way to maintain and update a database, typically across a network of computers. New data is added one ‘block’ at a time, and each block refers back to the previous block. Each new block gets added to an existing chain of blocks, hence the name ‘blockchain’.
Blockchain technology works particularly well for cryptocurrencies. Once data becomes part of the blockchain, it cannot be deleted or changed. In addition, many blockchains are run in a decentralized manner, where data is stored and updated simultaneously across the network. This makes it next to impossible to tamper with since discrepancies between different versions will be identified quickly.
To ensure each new block of data added to the chain is legitimate, a consensus mechanism is used that allows everyone on the network to check the legitimacy of every block. The most well-known and widely used consensus-reaching mechanism is called Proof of Work (PoW): earning the right to add a block by doing a certain amount of computational work.
The people doing this work are called miners, because successfully adding a new block to the blockchain generates some new amount of cryptocurrency that they are allowed to keep as a reward. In addition, miners are paid processing fees for the transactions in the block they added to the chain. These rewards are critical, since they incentivize the work needed to keep the blockchain operational.
Doing the work
The ‘work’ in a Proof of Work system usually consists of solving a numerical puzzle: one that is easy to check, but hard to solve. The only way to come up with the solution is by guessing again and again. Once someone finds a solution, they broadcast the new block to the rest of the network. The other participants can easily check if the solution is indeed correct. Everyone then adds the block to their local copy of the chain and the guessing game starts again for the next block.
The need for an upfront investment of computational power, and therefore energy, makes it less attractive to try to game the system, and the luck factor involved in whoever completes their Proof of Work first makes it practically impossible to add fraudulent data to blocks.
Growing the network
The more computers are trying to solve the puzzles, the harder the system becomes to tamper with. If you want to introduce a faulty block to the chain, you have to find a valid solution faster than anybody else and control a majority of the mining capacity under control, since everyone else in the network will check your solution. And even then it’s unlikely you’ll be able to keep a fraudulent chain going for long. The larger the network, the harder it is to break and the better the security of the system.
The big problem with blockchains and energy use
None of this explains why blockchains are energy guzzlers. That happens because blockchains operate on the condition that blocks can only be added to the chain on a consistent time interval, regardless of how many miners there are on the system. Roughly every 10 minutes on the Bitcoin blockchain and roughly every 15 seconds on the Ethereum blockchain. The reasons are complex, but the result is simple: As more mining capacity joins the network, the PoW puzzles have to be made harder. This way, it still takes the same amount of time to solve them; it just takes more energy.
Endless growth and burden-shifting
In other words: computers joining the mining do not change the functionality of a blockchain, but only increase its energy use. The law of diminishing returns plays a big role here. Once a blockchain network reaches a critical number of nodes, security already meets a base requirement. But mining is lucrative, and more and more people own cryptocurrency. As a result, the Bitcoin blockchain alone currently uses 204,5 TWh of electricity per year, comparable to the power consumption of Thailand. And it’s the amount of energy used itself that is the problem, not the source of that energy. Many miners are switching to renewable energy sources. But this simply moves the problem elsewhere. We don’t yet have enough renewable energy production to cover all of our activities. So, if mining uses up renewable energy, that just increases the non-renewable energy used on other activities.
A look to the future
Mining is only profitable if the rewards you receive for adding a new block to the chain are worth more than you spend on the energy used for mining. If energy prices go down or cryptocurrency values rise, the energy use of the blockchain will likely go up as mining becomes even more attractive.
Fortunately, the energy use issue has been recognized and several alternatives to the Proof of Work system have been developed. So far, these are not widely used. However, one of the largest cryptocurrency blockchains, Ether, is planning to move to a Proof of Stake system soon. This will be covered in the next part of this series on the environmental impact of the blockchain.
This was the first part of our series on blockchain technology. In future parts, we’ll look into allocating the energy use of the blockchain amongst its users to determine who is responsible for the impact and discuss alternative consensus methods such as Proof of Stake.
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.