Beyond Utility: Blockchain’s Impact on our Planet.
FINE#8385
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January 8th, 2023

Author(s): hamzat_iii#1111

Editor(s): koala#4988

Last updated: 8th Jan 2023


Blockchain skeptics argue that blockchain technology is destroying the planet. Is this a genuine crisis or do they just remind us of the boy who cried wolf?

As Mother Earth undergoes climate change, the energy consumption and carbon footprint of blockchain use cases (especially cryptocurrency) are arguably some of the strongest arguments against the full adoption of blockchain technology.

This article explores the conundrum from a neutral position; are these claims simply prejudicial or factual?

To do this, let’s go back to where it all began.

The History of Blockchain Technology

The inception of blockchain technology can be traced as far back as 1991 when research scientists Stuart Haber and W. Scott Stornetta proposed and eventually introduced a practical solution to digital documents being back-dated, forward-dated, or tampered with in any form. The solution involved an automated mechanism of storing the time-stamped documents cryptographically in a chain of blocks.

About a year later, Merkle Trees were integrated into the concept. They were used to secure the chain of blocks by storing digital records. Each digital record was connected to the previous one, forming a chain. The newest record in these created chains contained the history of the entire chain; therefore, constantly verifying all transactions within the chain.

The first step towards digital money was made in 2004. Hal Finney, a computer scientist and cryptographer introduced the Reusable Proof of Work (RPoW) mechanism. It was the first recognized cryptocurrency prototype.

The most significant step, however, was the conceptualization of the distributed blockchain theory by Satoshi Nakamoto in 2008. Nakamoto is a pseudonym for the brain or brains behind bitcoin and blockchain technology. This individual, or team, introduced the digital ledger where data was stored in a chain of blocks. This infrastructure would enable secure peer-to-peer transactions without the intervention of third parties or regulatory institutions.

On January 3, 2009, Nakomoto validated the concept of blockchain technology by mining the first bitcoin block. This “Genesis block” or “block 0” as it is more commonly called, contained 50 bitcoins. 9 days later, Nakamoto sent Hal Finney 10 bitcoins to signify the first bitcoin transaction. In October of that year, Bitcoin Market (the first bitcoin exchange) was established.

A major milestone in the history of blockchains was the launch of the Ethereum Foundation in 2014. Pioneered by Vitalik Buterin, Ethereum was being built as a decentralized application platform useful for other use cases aside from cryptocurrency. 

The launch of the Ethereum Frontier network in 2015 allowed developers to write smart contracts and build dApps (decentralized applications) deployable on the Ethereum network. Since then, blockchain has gone mainstream and continues to drive toward mass adoption.

How Does A Blockchain Work (adapted from Kilroy Blockchain)
How Does A Blockchain Work (adapted from Kilroy Blockchain)

The Future of Blockchain Technology

Stakeholders continue to research and invest in blockchain, which bodes well for the technology's adoption. However, as with any new technology, there are obstacles that must be overcome before it can attain widespread adoption, the most pressing of which being the "blockchain trilemma," which is defined by the issues of scalability, security, and decentralization of blockchain networks.

However, a relatively undermined but equally important challenge this technology faces is the environmental considerations surrounding blockchain networks. There have been numerous debates about blockchain use cases (especially cryptocurrencies), their energy consumption, and their corresponding carbon footprints.

So how do blockchains and cryptocurrency impact the environment?

Reaching Consensus

Nodes on a blockchain network verify each new data block through a consensus mechanism. The most commonly used mechanism is Proof of Work (PoW) where miners earn the right to validate transactions and create new blocks by doing some form of computational work (e.g. solving a mathematical puzzle). To simultaneously improve the security of these networks as they grow, more nodes are required to perform the computational work.

Understanding Proof of Work Blockchain in Crypto-Asset Mining (adapted from Kilroy Blockchain)
Understanding Proof of Work Blockchain in Crypto-Asset Mining (adapted from Kilroy Blockchain)

The PoW consensus mechanism demands tremendous input of energy to power the computations. This is because new blocks can only be validated and added to the chain at defined and consistent time intervals. This time interval is not directly affected by the number of nodes mining the block. However, the mathematical puzzles become harder as more miners join the network, causing more energy to be exerted towards synchronously completing the computations at the defined time interval.

It is noteworthy that the high energy consumption rate of blockchains with PoW consensus mechanisms is not primarily a direct result of inefficient algorithms, as it is this high energy consumption rate that protects these blockchain networks from Sybil attacks. These attacks are carried out by the attacker controlling the majority of the network’s computational power. By doing this, they can manipulate the blockchain network to their will. This means that as a blockchain network grows, the more secure it gets because a potential attacker must bear up to 50% of the total computational power required to mine new blocks.

However, the amount of scalable security that PoW gives to blockchains does not negate the fact that these blockchains have been estimated to consume up to 0.9% of the world's total energy usage, a figure that seems excessive for such a new technology.

“From 2018 to 2022, annualized electricity from global crypto-assets grew rapidly, with estimates of electricity usage doubling to quadrupling. As of August 2022, published estimates of the total global electricity usage for crypto-assets are between 120 and 240 billion kilowatt-hours per year, a range that exceeds the total annual electricity usage of many individual countries, such as Argentina or Australia. This is equivalent to 0.4% to 0.9% of annual global electricity usage.” – The United States White House in its September 2022 Climate Report:Climate and Energy Implications of Crypto Assets in the United States

You should note that the energy consumption of permissionless blockchains isn’t only influenced by the employed consensus mechanism. The three main energy outputs are:

  • The distributed virtual machine storage,

  • The consensus mechanism, and

  • The communication among nodes.

However, the energy expended to coordinate communication and storage is relatively negligible when compared to the energy expended to reach consensus. For instance, Bitcoin’s storage and communication mechanisms consume an upper boundary estimate of 0.00315Twh and 0.000006Twh, respectively, compared to its PoW consensus mechanism which consumes 263Twh annually (as estimated by the Swiss Federal Office of Energy).

It has been made evident that the operation of blockchain technology uses a significant amount of electricity, but what direct impact does this relatively novel technology have on the planet?

Carbon Footprint

Blockchain operations like mining cryptocurrency use grid electricity or power plants that are largely powered by fossil fuels, resulting in greenhouse gas emissions. This directly impacts the planet as it aggravates climate change.

“Global electricity generation for the crypto-assets with the largest market capitalizations resulted in a combined 140 ± 30 million metric tons of carbon dioxide per year (Mt CO2/y).” – The United States White House in its September 2022 Climate Report:Climate and Energy Implications of Crypto Assets in the United States

The University of Cambridge’s electricity consumption index of Bitcoin puts the global electricity consumption of Bitcoin mining rigs at 159.02 Twh, representing 0.6% of global electricity consumption and in turn, 0.3% of global CHG emissions. Before the outright ban on cryptocurrencies in China, about 30% of the average energy used by Bitcoin alone was generated from hydroelectric, solar and other renewable energy sources mostly generated in China. Between 2018 and 2021, this ban saw an increase in the estimated carbon intensity of electricity used for Bitcoin mining operations jumping from 480 grams of CO2 per kWh to 570 grams.

What Does This Imply?

It can be argued that the sheer volume of energy consumed by blockchain technology is not directly proportional to its environmental impact. Rather, it is important to factor in how the energy is being generated. Presently, Bitcoin mining operations use around 60% renewable energy, which is quite decent for a relatively new industry. An interesting metric garnered from research conducted by ARK Investment Management implies that the Bitcoin ecosystem consumes less than 10% of the energy required to run the traditional banking system.

Annual Greenhouse Gas Emissions From Major Financial Systems (adapted from ARK Investment Management)
Annual Greenhouse Gas Emissions From Major Financial Systems (adapted from ARK Investment Management)

Although arguable that traditional banking systems serve more people than DeFi (Decentralised Finance), experts like Nick Szabo believe that the resource consumption of blockchain technology in the form of computational power is a necessary tradeoff required to attain the levels of security and autonomy that blockchain technology has been able to reach.

“Prolific resource consumption and poor computational scalability unlock the security necessary for independent, seamlessly global, and automated integrity.” – Nick Szabo, Bit Gold founder and Bitcoin pioneer

The Future: Can Blockchain Technology Go Green?

Blockchain experts have admitted that the energy consumption of blockchain technology and the resultant effects can be considered problematic. Steps to remedy these issues have already been planned and are being implemented.

Newer blockchain networks have begun to build and adopt more efficient consensus mechanisms like PoS (Proof of Stake) consensus mechanisms.Older blockchains, such as Ethereum, the second largest, have begun to transition from the energy-intensive PoW consensus method to PoS. The Merge, one of the year's most notable black swan events, marked the transition of the Ethereum network to PoS. The Merge was only one key stage in the blockchain network's journey toward a more scalable and efficient network.

As blockchain aims toward carbon neutrality, other efforts like as carbon offsetting, carbon credits, and donations to environmentally friendly causes are worth mentioning.

Overall,

Proponents of blockchain technology point out that it is a budding innovative technology, and that its potential has only just begun to be explored. This goes without saying that blockchain technology is still in its early infrastructure stage, known to be particularly intensive. It is believed by blockchain proponents that as it matures, blockchain would continuously push towards maximum energy efficiency and could even go ahead to become a mechanism through which the environment can be improved.


~Web 3 Series #16

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