Lesson 11: In search of a more sustainable blockchain ecosystem

Lesson 11: In search of a more sustainable blockchain ecosystem

Communications

The energy necessary to power blockchain technology and its cryptocurrencies, such as that based on proof of work (PoW) is huge; but the evolution of mining protocols to proof of stake (PoS) or the transition to renewable energies enables more sustainable networks.

While it is being determined how blockchain technology helps companies with their sustainability drive –increasing transparency and saving costs–, the debate now on the table is how to make the technology itself more sustainable. One of the biggest critics of Bitcoin has been, historically, its huge energy consumption under the proof of work (PoW) protocol, a mechanism to verify and add transactions in the blockchain securely. This mining protocol requires high energy consumption and computer resources. 

Bitcoin consumption is often compared to that of entire countries. At July 2023, the bitcoin network consumes around 149 TWh, more than the consumption of Ukraine (134.5 TWh/year) and almost the same as that of Malaysia (150.8 TWh). When compared to industrial sectors, Bitcoin consumes 20 TWh more than gold mining. In fact, in October 2022, the European Commission, which prepared a report on the environmental impact of the crypto universe leading up to 2025, urged all Member States to prepare measures to reduce energy consumption in cryptocurrency mining. But is it possible to change the system to make it more sustainable?

Proof of Work (PoW) is one of the ways in which blockchains can achieve consensus and store reliable information.  Through this technique, cryptocurrency miners make complex energy-intensive calculations to verify blocks on the chain.

The problem? The energy used in these verification systems is wasted, because the calculation itself does not add value of trust to the system compared to alternative systems not based on PoW. PoW requires resources such as hardware and electricity, and others do not.

Not all cryptocurrencies are the same

Since Bitcoin, launched in 2009 by Satoshi Nakamoto, was the world’s first cryptocurrency, and started employing proof of work, this energy consumption is sometimes confused with cryptocurrencies as a whole, when the truth is that each coin has a specific impact and a different way of operating.

The energy consumed by a cryptocurrency depends on what cryptocurrency it is, because not all consume the same amount of energy or use the same resources. Bitcoin, due to the way in which its PoW and mining works, consumes more and more resources and emits each year more greenhouse gases. But it doesn’t have to be like this: the truth is that Bitcoin can change just as Ethereum or other cryptocurrencies designed from a more sustainable perspective have already changed.

Ethereum is already a green and sustainable network after completing its migration from proof of work to proof of stake (PoS), another way of verifying information and achieving consensus. The following graph, from Ethereum.org, is impressive, with data on the PoW of BTC and ETH compared to the PoS of ETH.

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A sustainable blockchain is possible

Blockchain technology, per se, is not polluting. But some of its protocols do need to have an impact to work. The positive aspect of these technologies is that their products can be voted, so they can be altered and changed to cleaner systems. The code is not immutable, and depends on the joint will of whoever owns the coin.

Among the already sustainable advantages of current blockchains, regardless of their trust system (PoW/PoS), is that that they use electrical energy, so that as the energy mix becomes greener, these technologies benefit from this, just like the electric train.

Nevertheless, with the growth of systems that participate in the blockchain, designed in fact to scale rapidly, achieving sustainable cryptographic systems is an ethical imperative (as well as a business opportunity) and a global challenge.