Blockchains and energy consumption

Image credit: Reuters UK

We are often asked about the energy, and therefore carbon emissions, implications of using a blockchain to store verified information and broker trust in a supply chain. Below sets out our opinion and some useful links to other’s thoughts and opinions on the subject.

If you’re not familiar with blockchain technology, read our introduction and FAQ.

Are you a brand interested in how blockchain technology can bring transparency to your supply chain? Get in touch here.

A legitimate cause for concern in the use of public Blockchains is the significant environmental impact from the energy consumption required. One estimation is that Bitcoin alone consumes 57.8 TWh each year – close to the annual energy consumption of Algeria. Compared to a global banking network with similar capabilities, but centrally controlled, this is a vastly higher energy requirement.

The high demand for energy arises due to an algorithm called Proof of Work. Designed as a proven mechanism to secure public blockchains, such as Bitcoin, it incentivises the participants of the blockchain (miners) to spend large amounts of electricity in exchange for Bitcoin.

One perspective to take is that it is easy to estimate Bitcoin’s energy consumption by looking at “how hard” the miners have to work. Yet, in comparison it is much harder to give an estimation of the net impact blockchain could have on the creation and movement of currency as it could improve inefficient communication between data silos and offer financial transparency.

While a lot of today’s mining relies on non-renewables, mining provides an ideal target for renewable energy. As mining turns energy into money on-site, location is not a constraint. Therefore, energy that is clean and free, but too remote to feed into the grid, can be used to mine with marginal impact. For example, GEAR Token is developing a platform to run blockchain mining through renewable energy in a closed-loop system. With a commitment to reinvest their proceeds into renewable energy infrastructure, as well as offering dividends to token-holders to further incentivise participation.

Furthermore, research is being conducted to replace Proof of Work with less energy-intensive algorithms which, on top of the energy savings, could provide better technical properties as well.

Three areas of research show promise here. The first and most widely expected to succeed is an alternative to Proof of Work called Proof of Stake (PoS). In Proof of Work, miners are incentivised to produce valid data by the energy cost that is compensated. Whereas in Proof of Stake miners stake cryptocurrency tokens, which they stand to lose if they behave badly. This enables distributed consensus while doing away with the need for energy to be wasted in Proof of Work calculations. Our estimates calculate an energy saving of over 95% would be possible, although the data to support this is not yet clear [1].

PoS has already been adopted by several blockchains [2][3][4] and is due to adopted by others , but it is not yet as stress tested as Proof of Work in regards to security.

Research into technologies that maintain a distributed ledger without requiring a blockchain will also lead to energy efficiencies. One example is the DAG (Directed Acyclic Graph), which does not require any miners. Instead, users validate each other’s transactions. The network is composed only of user machines operating as usual, with only some computer power dedicated to the network. In this example, the interpretation is that the network does not require any incremental energy beyond what user machines would already be using. Some DAG based distributed ledgers are already in operation [5][6]. However, the technology is still new and smart contracts on a DAG-based ledger have not yet been proven.

Finally, in some cases it may not be necessary to use a distributed ledger at all. Recent developments in Verifiable Data Structures have opened up the possibility of operating a central ledger, while allowing third parties to verify that the operator is not cheating by attempting to modify the contents of the ledger in invalid ways. Such a system retains many of the benefits of a blockchain based one (transparency, trustlessness, immutability, etc.) while massively reducing energy costs with only a few machines required to host and audit the ledger. Transparent ledger systems such as these are in the early stages of development and currently suffer from issues related to their centralized nature, nonetheless an interesting area to watch.

At Provenance, we continue to monitor all emerging technologies and acknowledge that a single solution to reducing energy consumption in blockchain, without compromise on the security of a blockchain, is not yet apparent. However, we are confident that solutions will be developed to realise the benefits of decentralized computing without the excessive energy consumption of current systems. The Provenance platform currently works on the Ethereum network, which is exploring PoS and as development continues, would present a viable solution to reduce energy consumption.

Importantly, rather than seeking to unnecessarily replace existing databases and processes, our use of Blockchain is focussed on where decentralisation can add value to brands and shoppers.

Footnotes:

[1] Based on Ethereum network, assuming that all nodes could be replaced by 1kw machines

[2] https://neo.org/

[3] https://www.dash.org/

[4] https://qtum.org/en

[5] https://www.iota.org

[6] http://www.vite.org/

Are you a brand interested in how blockchain technology can bring transparency to your supply chains? Get in touch here.