Updated: Sep 17, 2019
by Daniel Travaglia
Blockchain consists of a ledger that keeps track of all the transactions that occur in an encrypted peer-to-peer decentralized and distributed architecture. In practical terms, this technology shows promises in a variety of industries (food and beverage, banking, transportation, etc…) due to the potential of speeding up some business processes and to tackle issues that have remained unsolvable so far.
In this article, we will focus on the sustainability side. In fact, blockchain technology is being applied to design solutions in the world of food safety, supply chain traceability but also to impact the energy trading schemes that are available nowadays. While people envision world-changing plans through this technology, they often ignore or underestimate the non-sustainability side of the blockchain energy consumption. Why then blockchain is so energy demanding?
Being a member (node) of such a system (the blockchain) means that you have the potential to validate transactions that occur within the network. To enable this process, blockchain makes use of distributed consensus protocols which set rules on how the network is structured, how each block of transaction should be validated, but also on how compensation should be distributed among participants. If you have been constantly reading our newsletter, you will certainly have heard of Proof of Stake and Proof of Work, the two most famous consensus algorithms. These algorithms are the reason for such a high demand of energy: validating and securing transactions on the blockchain requires massive computation power. An expansion of a network would require additional machines to run the algorithm which in the long run would lead to an always growing energy consumption.
In a recent analysis on the Bitcoin network, it has been estimated that the electricity consumption of the nodes that are mining the cryptocurrency reaches almost the same yearly energy consumption of Ireland. Bitcoin is based on Proof of Work, an algorithm that gives an incentive to miners to invest in more powerful equipment to succeed in validating transactions over their peers.
In recent times, some analysts suggested several ways to tackle these issues:
1. Find alternative to proof-of-work validation method As we have already seen, PoW (proof of work) gives priority to nodes that have more computational power. This creates an incentive to increase the number of machines, which leverage the costs and energy to maintain such an environment. In previous years, two alternative methods were proposed: proof of stake and proof of authority. The first method is based on the amount of cryptocurrency that a node possesses, while the other randomly select a fixed amount of nodes to validate transactions. Those two algorithms do not scale with the computational power of a node, which do not create incentives to increase the number of machines. Despite these techniques seem to solve the issue related to energy consumption, they introduce several implications of which it is better to be aware of before adoption. On one hand, there is an ongoing discussion regarding the democracy (who has more, gets more) of such architectures. On the other hand, these algorithms do not allow to increase the number of nodes in the network over a certain amount due to a synchronization matter: each node must exchange information with all the other nodes of the network, exposing the network to overflow issues.
2. Another approach could consists in using the Blockchain as a way of obtaining a more energy-efficient system. Share & Charge for instance is developing a system to enable drivers to find private charging stations. This solution will allow owners to get a reward by lending their private charging points to external parties, stimulating the electric-vehicles economy as well. On the other side, Mangrovia wants to eliminate inefficiency within energy distribution networks and create incentives for whom is able to optimize energy consumption.
3. Lastly, there is an increasing effort in finding more sustainable ways to mine transactions. Some companies are trying to cover the crypto-mining activities with pure sustainable produced energy such as solar and wind energy. Therefore, if covered up by sustainable energy, blockchains could validate transactions even using energy-intensive consensus methods such as proof-of-work. The next step consists in identifying policies to prioritize companies/miners to use renewable energy to validate transactions.
Blockchain could renew its reputation by developing even further the options mentioned above. This could rebuild trust among people who appreciate the implications that this technology could bring to a wide range of businesses if applied correctly.