Blockchain’s growing impact on energy consumption

Summary

• The recent revelation of crypto mining’s high electricity usage has led companies to become hesitant when deciding whether or not to utilize blockchain technology.
• The traditional method of crypto mining, called proof-of-work (POW), requires significant computing power, and thus uses a lot of energy.
• Proof-of-stake (POS) also doesn’t require the same hard drive power as POW. The general use computers that POS requires are, by and large, run from the cloud.
• Blockchain can assist in a company’s environmental efforts by holding it accountable to its sustainability targets.

Elon Musk – the enigmatic Tesla founder and billionaire – announced earlier this year that the electric car company would cease accepting Bitcoin as payment for their products. He reasoned, at the time, that Bitcoin’s energy-consuming mining process was too harmful to the environment.

Indeed, data compiled by the University of Cambridge found that Bitcoin mining used the same amount of energy annually as some small countries.

Additionally, Ether – the second-largest cryptocurrency and native token of the Ethereum network – was found to consume as much electrical energy as Hong Kong while emitting as much carbon as the country of Lebanon.

These findings have led companies to become hesitant when deciding whether or not to utilize blockchain technology.

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What is blockchain technology?

Blockchain is a way of recording information in such a way as it cannot be changed or manipulated. As such, this technology makes it theoretically impossible for hackers to break into the network and change figures in an attempt to cheat the system.

When a transaction is made, the blockchain records the data and makes a block that is then added to a chain.

A blockchain is managed by multiple users in what’s known as Distributed Ledger Technology (DLT). The transactions made are then recorded with a cryptographic signature called a “hash”.

This means that if a hacker wanted to tamper with the data in the blockchain, he would need to change every single bit of data in every single block on the chain. This is because if just one block is changed in any way, it becomes immediately noticeable to the users.

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Blockchain’s bad rap

In the past few months, blockchain and the energy required by blockchain technology have been dealt a solid blow.

In June, the Chinese government began a crackdown on crypto mining in the country. According to a study done by the University of Cambridge's Centre for Alternative Finance, 65% of the world’s bitcoin miners were in China before June 2021.

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Moreover, research performed by Digiconomist found a single bitcoin transaction uses 700kg of carbon dioxide. A tree would require a lifetime to remove the same quantity of carbon dioxide from the air. This is a further reason blockchain has been largely criticised.

However, a new study has lent some nuance to that perception, finding that not all blockchain technology necessarily requires the same amount of energy to power a small nation.

Proof-of-stake vs proof-of-work

A recent report from asset management firm, Candriam, questions whether proof-of-stake (POS) methods of crypto mining can drive the future of digital assets.

The traditional method of mining crypto coins is called proof-of-work (POW) and requires computers to solve complex mathematical problems to release the tokens. This method requires a great deal of computer power and thus uses a lot of energy.

On the other hand, POS requires its miners to own the crypto, thus signifying that they will act in the best interest of the blockchain by having their own crypto at risk.

POS also doesn’t require the same hard drive power as POW. In fact, the general use computers that POS requires are, by in large, run from the cloud. Given that the majority of cloud service providers have particular carbon neutrality targets, the environmental benefits of using POS over POW are huge.

Ways Blockchain can help the environment

Blockchain can assist in a company’s environmental efforts by holding it accountable to its sustainability targets.

For example, due to the nature of blockchain technology, which cannot be changed or tampered with, the blockchain can potentially track and monitor its carbon footprint.

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Furthermore, the efficiency of blockchain technology can help reduce greenhouse gas emissions by reducing the overall manual labour required to process each transaction made. Therefore, by making processes more transparent, the process uses less time, less labour, and fewer people, resulting in a more positive environmental output.

As the world comes to terms with its greenhouse gas emissions and the emergence of blockchain technology, companies will need to further utilise this relatively new technology to meet environmental needs.

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