Ecological impacts and challenges of blockchain technologies
On 16 May 2018, Alex de Vries published an article: Bitcoin’s Growing Energy Problem in which he attempted to calculate the energy consumption from Bitcoin mining. His comparison of consumption between the Bitcoin network and that of Ireland became a common reference for decrying the gargantuan appetite of blockchains for gigawatts.
Calculating the ecological footprint of blockchains is a complicated exercise that requires many variables to be taken into account, some of which suffer from a lack of reliable information. How much electricity does blockchain activity consume? Where does the electricity consumed come from? Fossil fuels or renewable energy? Among the various ecological factors, identifying the origin of the electricity consumed by Bitcoin is a key issue. Consuming coal-fired electricity has a carbon footprint more than 170 times greater than hydroelectric power.
In addition to these factors, for which there is currently no precise information, the second-order effects arising from this consumption, such as the energy spent cooling the mining centres, or the pollution from technological waste and the extraction of rare metals, should be added to the calculation.
This consumption should then be compared with what is comparable: that of the traditional systems for transferring and storing value (e.g. the banking network) and creating value (e.g. gold mining).
The aim of this document is not to quantify the energy consumption of blockchains; Bitcoin, quoted by way of introduction, reveals the obstacles encountered by this type of calculation. We will analyse the various impacts of blockchains on the ecology through the way they operate and the use cases that these technologies can be used to develop for the benefit of other industrial sectors in order to reduce their ecological footprint.
How blockchains work: the ecological footprint depends on the consensus protocol
In order to function, any public blockchain requires a consensus process to validate the various blocks. Consensus can be reached in a variety of ways, and it is one of these processes, Proof-of-Work (PoW), that has been singled out as the main energy consumer of blockchains. There are other mechanisms, the most important of which are Proof-of-Stake (PoS) and Delegated-Proof-of-Stake (dPoS). These three protocols account for more than three-quarters of global blockchain activity. Ethereum (PoW, which is gradually implementing PoS) and Bitcoin (PoW) account for 77% of the overall capitalisation of crypto-assets, while EOS (dPoS) and Tezos (dPoS) account for 75% of the overall number of blockchain transactions.
Historically and through its use, PoW is the first consensus protocol. It is also the most energy-intensive protocol. The consumption of electricity and the cost it generates are not an unexpected consequence of the use of this protocol, but figure right from the genesis of the proof of work. This cost acts as a guardian of the honesty of the miners and thus the integrity of the blockchain, as the potential benefits of dishonest validation are countered by the electricity cost that this action would require. Miners contribute through the computing power of their hardware. At present, more and more miners are gathering together to form mining farms, thereby concentrating a great deal of computing power, high electricity consumption and, de facto, a high financial cost.
Studies of electricity consumption focus on Bitcoin, and do not look at other blockchains, such as Ethereum, which operate on the same protocol. While their figures on the overall consumption of blockchain are imprecise, they nevertheless provide an order of magnitude of global consumption, 88.96 tWh in 2020 according to the CBECI, for example, and reveal the need to address this.
There are as yet no quantitative studies exploring the overall electricity consumption of a blockchain operating with proof of stake. Nevertheless, the way it works differs greatly from proof of work, and helps to explain the much lower electricity consumption. The network’s validators commit their digital assets and are selected at random to validate the blocks. There is no longer any notion of a race for computing speed, and no longer any concern about excessive electricity consumption. Proof-of-stake can be seen as a solution to the ecological footprint of blockchains, but there are other issues involved in adopting it.
The Delegated Proof-of-Stake
Similar to proof of stake, it adds another layer to the validation process. Participants who earn their assets will then vote and elect delegates responsible for reaching a consensus. While the use of this protocol raises other questions, particularly concerning security, it also presents a more ecological solution for the operation of blockchains.
In terms of the ecological footprint of blockchains, those operating using PoW are much more energy-intensive than technologies based on PoS or dPoS.
Will proof-of-stake and delegated proof-of-stake make it possible to reduce the blockchain’s ecological footprint? Although at first sight these solutions seem promising, it is not easy to switch a blockchain from one consensus protocol to another. Ethereum is proof of this: its transition from a proof-of-work protocol to a proof-of-stake protocol is a long-term project, which should see the light of day in 2022 after launching the first phase in December 2020, the fruit of several years’ research. For blockchains such as Bitcoin, other solutions are possible and being considered to reduce the ecological impact of their operation.
Towards more green energy: the new opportunity of geographical arbitrage
The alignment of needs between green energy producers and miners is a rare opportunity to reduce the latter’s carbon footprint. Producers have plant construction costs to amortise, and suffer a loss of energy when their production capacity exceeds the demand on their network or when there is a significant difference between the demand for electricity during the day and at night. One way of reducing their costs is therefore to sell the electricity they produce to third parties. Miners, on the other hand, are looking for the cheapest electricity and have the ability to set up anywhere in the world.
In 2020, 76% of miners will include green energy in their energy mix; an estimate based on the mix of the countries in which they are located. This represents a 39% share of renewable energy in final consumption, which is higher than the global average. These figures can be explained by the unprecedented ability of miners to engage in geographical arbitrage, i.e. to locate anywhere close to an inexpensive source of energy production. They are gradually migrating to areas where there is an overproduction of green energy and where prices are low: Iceland, Scandinavia, the Caucasus, the Pacific Northwest, Eastern Canada and South-West China.
A more recent example also shows the potential of mining farms to amortise the construction and operating costs of hydroelectric power stations, where supply still far exceeds demand. While the primary objective is economic, the environmental impact will be no less significant: the deployment of electrification for the 520 million people in Sub-Saharan Africa who have no access to electricity. Since 2017, Virunga, DRC, has been equipped with hydroelectric power stations that will eventually meet the region’s needs and combat deforestation in Virunga (the world’s second-largest forest park after Amazonia). These power stations currently have excess production capacity due to the lack of economic development in the region. BigBlock Data Center, a mining company, has set up a farm that obtains its supplies from the hydroelectric power stations, enabling them to recoup some of their costs.
Although green energy does not reduce the amount of electricity consumed by PoW blockchains, it does reduce their carbon footprint. Hydroelectric power generation produces 6 grams of CO2 per kWh, while coal produces 1,060 grams, fuel oil 730 grams and gas 418 grams. In this way, blockchain offers itself the opportunity to solve part of its ecological challenge by positioning itself among the greenest industries and having a positive impact on the development of renewable energies.
Towards more green energy: increasing responsibility on the part of industry
The cryptoasset industry is increasingly aware of and committed to reducing the ecological impact of the applications developed and services offered using blockchain technologies. The frenzy around non-fungible tokens (NFTs) at the beginning of the year has reinvigorated this debate, and partly explains the acceleration of the timetable for Ethereum’s full migration to PoS, now scheduled for October 2021. The Crypto Climate Accord was also launched in early April. Spearheaded by Energy Web, the Alliance for Innovative Regulation and RMI, and backed by more than twenty sponsors (including traditional players such as Engie and EDF via its subsidiary Exaion), this private initiative promotes the urgent decarbonisation of the crypto-asset industry and proposes three (possibly adjustable) objectives to this end: to enable all blockchains to operate on an energy mix consisting exclusively of renewable energy by 2025, to measure the industry’s CO2 emissions by developing an open source accounting standard, and to achieve net zero emissions by 2040. This last point seems to echo certain commitments made by large companies (such as Amazon), and thus anticipates symmetrical injunctions.
These various signals testify to the growing awareness that environmental issues do not spare the sector.
It is possible to reduce the ecological impact of blockchain operations: miners can take advantage of geographical arbitrage to choose their energy sources, and different protocols are inherently less energy-intensive. There are also a number of signs that industry players are gradually, but ambitiously, getting to grips with the issue.
It has to be said that most blockchain technologies currently have a high ecological cost. As has been established, this is mainly due to the PoW protocol, which is not used by all blockchains and some of which tend to deviate from it. In addition, the PoW protocol can also be used as a lever to increase the production of green energy.
In its applications, this technology presents opportunities for reducing carbon footprints, cutting waste and decentralising energy supplies. Scientia potentia est: traceability, an inherent advantage of blockchain, also increases citizens’ power to demand more responsible means of production. Finally, blockchain, like any technology, is a tool whose use depends on the wishes of those who use it. Today, we are seeing the emergence of projects focusing on ecology and the environment.
This article was written by Bettina Boon Falleur