How does one “green” the blockchain?

Cryptocurrency mining and maintaining the work of blockchains in general are associated with high electricity consumption. Often this energy comes from burning fossil fuels, which causes great harm to the environment. There are two ways out of the situation: either using green energy or switching to PoS en masse.

Recently, Bloomberg reported that electricity consumption for mining bitcoin set a new global record: 67 terawatt-hours per day. The same daily amount of energy could power the whole of Pakistan – a large country with a population of 200 million. It definitely seems like too much. The global banking system we so love criticizing doesn’t consume anywhere close to that amount.

And this presents a real problem.

It is no coincidence that Elon Musk, a man with perfect awareness of the situation, on May 13, collapsed the bitcoin rate by 16%, announcing that his company, Tesla, would stop accepting the first cryptocurrency as a means of payment for their electric cars.

“We are concerned about the rapid increase in the use of fossil fuels for bitcoin mining and transactions, especially as it pertains to coal, responsible for more harmful emissions than any other fuel type, – said Musk. – Cryptocurrency is in many ways a good idea, and we believe it shows a lot of promise, but it should not come at the expense of the environment. Tesla isn’t going to trade bitcoins, but we will start using them in transactions as soon as mining switches to renewable energy sources. We also consider other cryptocurrencies that use less than 1% of energy spent on Bitcoin transactions.”

It is difficult to say what goals Ilon Musk pursued with his statement, but he definitely managed to attract attention to the problem. He raised a concern that many avoided talking about on the wave of crypto popularity: cryptocurrencies based on the Proof-of-Work consensus algorithm enact a high cost on the planet. It is an issue Satoshi Nakamoto clearly did not foresee – hashrate growing to the point where mining takes up insane amounts of energy humanity could well direct towards much more worthy goals. Or simply reduce the power generation, which would have an immediate beneficial effect on the environment.

Musk’s message was loud and clear, and everyone rushed to talk about eco-mining based on the use of renewable energy sources, be it a hydroelectric power station, solar, or wind energy. However, a trend of moving mining to the regions where “green” electricity generation methods are more available had appeared even before that. These are areas with powerful rivers, sufficient sunlight for solar batteries, or wind energy sources. It isn’t always smooth sailing, of course: consider how in the spring of this year, the Iranian authorities banned mining in the country after a drought had depleted water reservoirs leading to a hydropower shortage. This, in turn, caused an energy deficit.

A week after the head of Tesla’s statement and the major market drop it caused, MicroStrategy CEO Michael Saylor became an intermediary at Musk’s meeting with the largest bitcoin miners in North America. The meeting resulted in the creation of the Bitcoin Mining Council, which included representatives of such prominent companies as Argos Blockchain, Blockcap, Galaxy Digital, Hive Blockchain, Hut 8 Mining, Marathon Digital, and Riot Blockchain. They all agreed to monitor power consumption and promote green initiatives for bitcoin

In early July, the Bitcoin Mining Council first reported on the amount of energy used by the first cryptocurrency network. The data gathering organization conducted the “first-ever voluntary survey” of industry participants. The respondents answered questions about the amount of electricity their mining enterprises consume, what percentage of renewable energy is used in mining, and also reported on the hash rate. The council estimates that over 32% of miners took part in the survey.

It found that 67% of the energy used by the participants comes from renewable sources. And the entire Bitcoin ecosystem is 56% powered by renewable sources.

However, the data might not be all that reliable, especially considering the fact it is not verified in any way. And there is a good reason for doubts. One distinctive feature of all renewable energy sources is instability. A gas or nuclear power plant will always produce the same energy as long as it is supplied with fuel. But windmills depend on the wind, a solar power plant is basically useless half a day, and even hydroelectric power plants are highly dependent on the weather in the region.

Mining, on the other hand, is a constant process that requires a permanent power supply. In practice, this means that even if miners seemingly buy green electricity, they then exchange it for energy from stable, though far from the most “environmentally friendly” sources, through swap deals.

Therefore, a much better, in all senses, way to improve the environmental credentials of the blockchain industry is a mass transition to the Proof-of-Stake consensus algorithm. It will reduce the electricity consumption necessary for blockchain operations to just 1% of the current amount.

The PoS algorithm reduces the blockchain resource demands since the network switches from miners who receive rewards for transactions to validators through which they pass. The miner is interested in processing the maximum number of transactions, which takes up huge computing capacities. Proof-of-Stake is not built on rewards, but on penalties for incorrect network operations. With this algorithm, if a node starts to do “foul play”, the network stops sending transactions to it. This creates an incentive for validators to remain honest: the potential risk/reward ratio makes unreliable work disadvantageous.

The Ethereum team currently provides an excellent example of that. The annual carbon footprint of the Ethereum network is comparable to that of Sudan. However, these problems are addressed with the upcoming network transition to ETH 2.0, which will introduce the PoS algorithm.

Also, in the wake of the efforts to “green” the blockchain business, projects like Ripple, Stellar Lumens, and Cardano could also take off, as their transactions use a relatively small amount of energy, only 0.0079 kWh. (For comparison, the Litecoin network’s power consumption is estimated at 18,522 kWh per transaction.)