How to understand the environmental impact of blockchains

Generally, people know that blockchains consume huge amounts of energy, but why and how to reduce it will be key in discussions about blockchain and Web3-based applications in times of climate crisis.

why is it important

It is no longer controversial to say that economies, businesses and technology must try to reduce their emissions to net zero as soon as they can if humanity, as a species, is to avoid ecological devastation and the social and political chaos that will be unleashed.

And yet, almost ironically, a technology is becoming more widespread that seems to consume as much energy as it is possible to consume. Single transactions use the same amount of energy that an American household would use over months.

These transactions are now becoming an increasingly important part of the marketing world as brands begin to get involved with digital tokens (NFTs) and begin to think about the possibilities that blockchain technology offers them.

We need to understand what’s going on and what to do before investing in stuff that literally costs the earth.

Why so much energy?

Cryptocurrencies on a blockchain (distributed database) are more than wildly speculative markets, they are – at least theoretically – both a store of value and a payment technology.

But it’s that last part, payments, where cryptocurrencies tend to suck and that’s because every time a transaction is made, consensus has to be built across the entire distributed database. (or at least 51%, for security reasons) via what is called proof. -work. By transaction, it is also important to note that this also includes the minting or transfer of an NFT.

The difference between traditional payment networks like VISA and Mastercard and blockchain is that banks use their own enterprise-level infrastructure, which means a concentrated market but a faster user experience. On a blockchain the infrastructure is distributed, delegated to “miners” all around the network. Nobody “owns” the technology, so to speak.

Miners are responsible for processing transactions and adding them to the blockchain. They are superusers competing for the processing work by trying to solve the math problem (a cryptographic puzzle) faster than everyone else. In exchange for this treatment, the winner gets money. Since it’s not a person with a calculator doing the calculations, it all boils down to the most powerful computer processor exerting the most effort.

They also help defend against attacks on the network. One of the main forms is a Sybil attack, i.e. when the attacker creates many artificial identities (more than 51% of the network) to distort the decision of the majority as to whether a transaction took place. place.

That’s a lot of energy

Digiconomist’s widely quoted Bitcoin/Ethereum Energy Consumption Index assesses a transaction’s monumental environmental impact on everyone, using countries and households to explain the huge numbers:

  • Bitcoin, the original and far more energy-intensive, has a total annual energy footprint similar to that of Thailand and emits as much carbon as Kuwait. A single transaction consumes as much energy as a An American household would have more than 73.82 days. This equates to more than two million VISA transactions.
  • Ethereum is better, but a single transaction still consumes as much electricity as an American household for 8.32 days, the equivalent of 200,000 VISA transactions. Over the year, it’s as much power as the Netherlands.

Together, these two blockchains use significant amounts of power, just ahead of Saudi Arabia and Italy and just behind the UK. It would be the 12th most consuming economy on the planet.

Image: Digiconomist

Change is coming

2022 is set to be a year of transition for blockchain technologies as one of the biggest, Ethereum, transitions from Eth1 (proof of work) to Eth2 (proof of stake). As of yesterday, it was renamed to Execution Layer and Consensus Layer to reflect the fact that it is a merge upgrade rather than a replacement.

Picture: Ethereum

The move to proof-of-stake (PoS) is a major change, but Ethereum hopes it will make its blockchain both safer to use and much less energy-intensive. It’s not just Ethereum 2, other major PoS networks include Polkadot, Cardano, and Tezos, among others.

Proof-of-stake blockchains are a new generation that realized their predecessors had a limit to their scalability, and instead use a network of “validators” – senior users for lack of a better term – who will stake their own crypto. -currency in exchange for the possibility of validating a transaction in exchange for a reward.

Indeed, the energy resource is replaced by capital. However, as research from UCL Computer Science on the power consumption of post-PoW blockchains shows, these systems can vary widely.

Image: UCL Informatics

As UCL research shows, while using far less power than the Bitcoin proof-of-work (PoW) network (relative to the number of transactions the network can perform at any one time), all networks of proof of stake use much less energy – two to three orders of magnitude less than Bitcoin.

While the researchers note that this is a working paper and the results will be updated, there are some very positive signs.

“Our work shows that PoS-based systems can contribute to [the challenges posed by climate change] and could even reduce the power requirements of traditional central payment systems, raising hopes that DLT [Distributed Ledger Technology, i.e. a blockchain] can make a positive contribution to the fight against climate change.

What to do about it

While the market is very hot right now with discussions of Web 3.0 and NFTs rampant, the technology is in a phase of transition. It is important to be picky and critical of the underlying processes. In light of a climate crisis, this is not technology neutral.

However, it is not just useless technology. As the underlying technology becomes more sophisticated, its applicability and usability will likely increase. This is the time to take an interest in it, but not the time to put all your eggs in one basket.

About Rodney Fletcher

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