Figure 1 — Evolution of Bitcoin mining country share.Source: Cambridge Bitcoin Electricity Consumption Index .In addition, other research shows that Bitcoin mining can even be used as a “subsidy” for renewable energy, as it can use energy during times of excess generation.Monetizing this excess generation through PoW mining creates returns that further improve the business model of renewable energy sources (see e.g., Square 2021 or ARKinvest 2021 for additional information).
Other consensus mechanisms like Proof-of-Stake
But we can’t allow Bitcoin and PoW mining’s potential heavy energy consumption to sidetrack blockchain’s potential upsides — again; high energy consumption is only inherent to Bitcoin (and other PoW Cryptocurrencies to a minor degree).It does not apply to most other blockchain architecture designs.There are already many other consensus mechanisms that have already been developed and keep on evolving.
For example, Ethereum, the second-biggest cryptocurrency, is currently transitioning its consensus mechanisms from PoW to Proof-of-Stake (PoS).In PoS, network validators — which fulfill a similar function to miners in Bitcoin — support the network by putting up a token stake to determine which transactions are added as blocks to the blockchain.
As the PoS validators are not competing through computational power, which consumes energy, running these validator nodes only requires economic resources like network tokens.
Except for the comparatively minimal amounts of energy to run the distributed network nodes, no additional energy.According to the Ethereum Foundation, the transition from PoW to PoS reduces the Ethereum total network’s energy consumption by at least 99.95% (figure 2), or 2.62 megawatts equivalent to a small town of around 2,100 American homes.
Figure 2 — Bitcoin and Ethereum PoW energy consumption compared to Ethereum PoS (from Digiconomist).This comparison is not to impose any value judgment on the Bitcoin or Ethereum networks but to illustrate that the design of the consensus mechanism determines energy consumption.A substantial number of consensus mechanisms already exist that keeps growing (see, for example, Wang et al., 2019 and Shahaab et al., 2019 ).These mechanisms have different design specifications relating to network governance and authority distribution, reflecting trade-offs between network decentralization, scalability, and security.Due to these trade-offs, blockchains have specific strengths and limitations that must be carefully matched with the respective use case requirements.
DDL’s & OEF’s blockchain design approaches
At DDL and OEF, our goal is to use blockchain technology to create a distributed network design that enhances transparency and reduces information asymmetries among heterogeneous climate actors.This design is based on bottom-up data contributions from all actors to allow for the triangulation of independent data sources.
Consequently, we are opting for a blockchain design that does not consume significantly and differs from cryptocurrency applications.
We generally use consensus mechanisms that are run by known and verified entities acting as validators.These validators have shared ownership of the blockchain system and are actors like national governments, intergovernmental organizations, independent verifiers, academia, and non-profits.
Accordingly, the validators are incentivized based on reputation and accountability, given that their identity is known to everyone and appointed or elected by the broader climate community.This design represents just a high-level description to illustrate the difference to the PoW and PoS consensus mechanism logics.The actual governance of network validators is highly complex and will be developed by the community over time.
An example of such a climate use case application is the World Bank Climate Warehouse , which uses the Proof-of-Authority (PoA) consensus mechanism.The Warehouse links diverse climate accounting systems into a shared blockchain-based platform that aggregates and harmonizes all climate accounting data.
PoA is a permissioned fork, i.e., copy of code, of the Ethereum protocol where the different network participants run the network validation node.In this way, all the network participants “own” a copy of the network for maintaining their sovereignty and can directly contribute to their transactions while also having real-time oversight of the transactions of all other actors.If an actor tries to collude, the network can identify such collusion attempts and take appropriate action by, e.g., revoking the validator status.
The shared consensus among the climate community is a deliberate design choice, as this design requires all actors to verify their data and report their emissions transparently.Holding national, subnational, and non-state actors accountable is essential for achieving the climate goals as set out in the Paris Agreement (see, e.g.
( Pauw & Klein 2020 ), ( Schoenefeld et al., 2018 ), and ( Winkler et al., 2017 ) for more information).
Also, Greta Thunberg calling out the UK for lying about cutting their emissions presents another recent example of why we need alternative data governance structures to ensure the validity and accuracy of critical emissions data.
Stay tuned on our Medium channel, our Data-Driven EnviroLab and Open Earth Foundation homepages, and our new Climate Data 2.0 Wikisite for updates.For additional reading, see the below list of relevant literature.
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APPENDIX — List of Bitcoin energy consumption publications
Agung, A.A.G., Dillak, R.G., Suchendra, D.
R., & Robbi, H.(2019).Proof of work: Energy inefficiency and profitability.Journal of Theoretical and Applied Information Technology , 97 (5), 1623–1633.
ARKinvest.(2021).
SolarBatteryBitcoin .
1–6.Retrieved from https://github.com/ARKInvest/SolarBatteryBitcoin
Aste, T.(2016).The Fair Cost of Bitcoin Proof of Work.SSRN Electronic Journal , 0–2.https://doi.org/10.2139/ssrn.2801048
Auer, R.
(2019).Beyond the Doomsday Economics of “Proof-of-Work” in Cryptocurrencies.
Federal Reserve Bank of Dallas, Globalization Institute Working Papers , 2019 (355).https://doi.org/10.24149/gwp355
Benetton, M., Compiani, G., & Morse, A.(2019).CryptoMining: Energy Use and Local Impact .
Blandin, A., Pieters, G.
C., Wu, Y., Dek, A., Eisermann, T., Njoki, D., & Taylor, S.(2020).
3rd Global Cryptoasset Benchmarking Study.SSRN Electronic Journal , (September).
https://doi.org/10.2139/ssrn.3700822
Carter, N.(2021).
The Bitcoin Energy Debate us a Modern Reprise of the Gold Resource Cost Debate.Bitcoin Magazine .
Retrieved from https://bitcoinmagazine.com/culture/bitcoin-and-gold-energy-debate
Carter, N.(2021).What Bloomberg Gets Wrong About Bitcoin’s Climate Footprint.CoinDesk , 1–14.
Retrieved from https://www.coindesk.com/what-bloomberg-gets-wrong-about-bitcoins-climate-footprint
Carter, N.(2021).The Frustrating , Maddening , All- Consuming Bitcoin Energy Debate.CoinDesk , 1–15.Retrieved from https://www.coindesk.com/frustrating-maddening-all-consuming-bitcoin-energy-debate
Carter, N.
(2021).On Bitcoin, the Gray Lady Embraces Climate Lysenkoism.Medium.Com , 1–16.Retrieved from https://medium.com/@nic__carter/on-bitcoin-the-gray-lady-embraces-climate-lysenkoism-a2d31e465ec0
Carter, N.(2021).
Noahbjectivity on Bitcoin Mining.A response to Noah Smith.
Medium.Com , 1–17.Retrieved from https://medium.com/@nic__carter/noahbjectivity-on-bitcoin-mining-2052226310cb
Das, D., & Dutta, A.(2020).
Bitcoin’s energy consumption: Is it the Achilles heel to miner’s revenue? Economics Letters , 186 (xxxx), 108530.https://doi.org/10.1016/j.econlet.2019.108530
de Vries, A.(2019).
Renewable Energy Will Not Solve Bitcoin’s Sustainability Problem.Joule , 3 (4), 893–898.
https://doi.org/10.1016/j.joule.2019.02.007
de Vries, A.(2018).Bitcoin’s Growing Energy Problem.Joule , 2 (5), 801–805.
https://doi.org/10.1016/j.joule.2018.04.016
Delgado-Mohatar, O., Felis-Rota, M., & Fernández-Herraiz, C.(2019).The Bitcoin mining breakdown: Is mining still profitable? Economics Letters , 184 , 108492.https://doi.org/10.1016/j.econlet.2019.05.044
Dittmar, L., & Praktiknjo, A.(2019).Could Bitcoin emissions push global warming above 2 °C? Nature Climate Change , 9 (9), 656–657.
https://doi.org/10.1038/s41558-019-0534-5
Eigelshoven, F., Ullrich, A., & Bender, B.(2020).Public Blockchain — a Systematic Literature Review on the Sustainability of Consensus Algorithms.Twenty-Eigth European Conference on Information Systems (ECIS2020), Marrakesh, Morocco., (June), 1–17.
Retrieved from https://aisel.aisnet.org/ecis2020_rp/202
Fadeyi, O., Krejcar, O., Maresova, P., Kuca, K., Brida, P., & Selamat, A.(2020).Opinions on sustainability of smart cities in the context of energy challenges posed by cryptocurrency mining.Sustainability (Switzerland) , 12 (1).https://doi.org/10.3390/su12010169
Gallersdörfer, U., Klaaßen, L., & Stoll, C.
(2020).Energy Consumption of Cryptocurrencies Beyond Bitcoin.Joule , 4 (9), 1843–1846.https://doi.org/10.1016/j.joule.2020.07.013
Giungato, P., Rana, R., Tarabella, A., & Tricase, C.
(2017).
Current trends in sustainability of bitcoins and related blockchain technology.Sustainability (Switzerland) , 9 (12).https://doi.org/10.3390/su9122214
Goodkind, A.
L., Jones, B.A., & Berrens, R.
P.(2020).
Cryptodamages: Monetary value estimates of the air pollution and human health impacts of cryptocurrency mining.Energy Research and Social Science , 59 (September 2019), 101281.https://doi.org/10.1016/j.erss.2019.101281
Greenberg, P., & Bugden, D.(2019).Energy consumption boomtowns in the United States: Community responses to a cryptocurrency boom.Energy Research and Social Science , 50 (August 2018), 162–167.https://doi.org/10.1016/j.erss.2018.12.005
Halgamuge, M.
N., & Syed, A.
(2019).Energy Efficient Bitcoin Mining to Maximize the Mining Profit : Using Data from 119 Bitcoin Mining Hardware Setups ENERGY EFFICIENT BITCOIN MINING TO MAXIMIZE THE MINING PROFIT : USING DATA FROM 119 BITCOIN MINING .(November).
Houy, N.(2019).Rational mining limits Bitcoin emissions.Nature Climate Change , 9 (9), 655.
https://doi.org/10.1038/s41558-019-0533-6
Jiang, S., Li, Y., Lu, Q., Hong, Y., Guan, D., Xiong, Y., & Wang, S.(2021).Policy assessments for the carbon emission flows and sustainability of Bitcoin blockchain operation in China.Nature Communications , 12 (1), 1938.https://doi.org/10.1038/s41467-021-22256-3
Kim, J.T., Jin, J., & Kim, K.(2018).
A study on an energy-effective and secure consensus algorithm for private blockchain systems (PoM: Proof of Majority).9th International Conference on Information and Communication Technology Convergence: ICT Convergence Powered by Smart Intelligence, ICTC 2018 , 932–935.https://doi.org/10.1109/ICTC.2018.8539561
Koomey, J.
(2019).Estimating Bitcoin Electricity Use: A Beginner’s Guide.Coin Center Report , (May).Retrieved from https://coincenter.org/files/estimating-bitcoin-electricity-use.pdf
Krause, M.J., & Tolaymat, T.(2018).Quantification of energy and carbon costs for mining cryptocurrencies.Nature Sustainability , 1 (11), 711–718.
https://doi.org/10.1038/s41893-018-0152-7
Küfeoglu, S., & Özkuran, M.(2019).Energy Consumption of Bitcoin Mining.
Cambridge Working Papers in Economics , (December 2017).
Kugler, L.(2018).Why cryptocurrencies use so much energy — and what to do about it.
Communications of the ACM , 61 (7), 15–17.https://doi.org/10.1145/3213762
Leslie, M.
(2020).Will Cryptocurrencies Break the Energy Bank? Engineering , 6 (5), 489–490.https://doi.org/10.1016/j.eng.2020.03.011
Li, J., Li, N., Peng, J., Cui, H., & Wu, Z.(2019).
Energy consumption of cryptocurrency mining: A study of electricity consumption in mining cryptocurrencies.Energy , 168 , 160–168.https://doi.org/10.1016/j.energy.2018.11.046
Malfuzi, A., Mehr, A.S., Rosen, M.A., Alharthi, M., & Kurilova, A.A.
(2020).Economic viability of bitcoin mining using a renewable-based SOFC power system to supply the electrical power demand.Energy , 203 , 117843.https://doi.org/10.1016/j.energy.2020.117843
Masanet, E., Shehabi, A., Lei, N., Vranken, H., Koomey, J., & Malmodin, J.(2019).Implausible projections overestimate near-term Bitcoin CO2 emissions.
Nature Climate Change , 9 (9), 653–654.https://doi.org/10.1038/s41558-019-0535-4
Mishra, S.
P., Jacob, V., & Radhakrishnan, S.(2017).Energy Consumption — Bitcoin ’ S Achilles Heel.SSRN Electronic Journal , 1–10.
Mora, C., Rollins, R.L., Taladay, K., Kantar, M.B., Chock, M.
K., Shimada, M., & Franklin, E.C.(2018).Bitcoin emissions alone could push global warming above 2°C.
Nature Climate Change , 8 (11), 931–933.https://doi.org/10.1038/s41558-018-0321-8
Narayanan, A.(n.d.).United States Senate, Committee on Energy and Natural Resources Hearing on Energy Efficiency of Blockchain and Similar Technologies .
O’Dwyert, K.
J., & Malone, D.(2014).Bitcoin mining and its energy footprint.IET Conference Publications , 2014 (CP639), 280–285.
https://doi.org/10.1049/cp.2014.0699
P.Wongthongtham, Morrison, G., & Liu, X.(n.d.).The Costs and Benefits of Blockchain Based Peer-to-peer Energy Trading : An Evaluation from the Perspective of Carbon Emission and Economic Value.
Low Carbon Living CRC .
Rusovs, D., Jaundalders, S., & Stanka, P.(2018).Blockchain mining of cryptocurrencies as challenge and opportunity for renewable energy.2018 IEEE 59th International Scientific Conference on Power and Electrical Engineering of Riga Technical University (RTUCON) , 855 , 1–5.
https://doi.org/10.1109/RTUCON.2018.8659867
Saleh, F.(2018).Blockchain Without Waste: Proof-of-Stake.SSRN Electronic Journal .
https://doi.org/10.2139/ssrn.3183935
Schinckus, C., Nguyen, C.P., & Ling, F.C.H.
(2020).
Crypto-currencies trading and energy consumption.International Journal of Energy Economics and Policy , 10 (3), 355–364.https://doi.org/10.32479/ijeep.9258
Sedlmeir, J., Buhl, H.U., Fridgen, G., & Keller, R.(2020).
The Energy Consumption of Blockchain Technology: Beyond Myth.Business & Information Systems Engineering , 62 (6), 599–608.https://doi.org/10.1007/s12599-020-00656-x
Square.(2021).Bitcoin is Key to an Abundant , Clean Energy Future .
(April), 1–5.
Retrieved from https://assets.ctfassets.net/2d5q1td6cyxq/5mRjc9X5LTXFFihIlTt7QK/e7bcba47217b60423a01a357e036105e/BCEI_White_Paper.pdf
Stoll, C., Klaaßen, L., & Gallersdörfer, U.(2019).The Carbon Footprint of Bitcoin.Joule , 3 (7), 1647–1661.https://doi.org/10.1016/j.joule.2019.05.012
Truby, J.(2018).Decarbonizing Bitcoin: Law and policy choices for reducing the energy consumption of Blockchain technologies and digital currencies.Energy Research and Social Science , 44 (February), 399–410.
https://doi.org/10.1016/j.erss.2018.06.009
Vranken, H.(2017).Sustainability of bitcoin and blockchains.Current Opinion in Environmental Sustainability , 28 , 1–9.https://doi.org/10.1016/j.cosust.2017.04.011
Zade, M., Myklebost, J., Tzscheutschler, P., & Wagner, U.(2019).Is bitcoin the only problem? A scenario model for the power demand of blockchains.
Frontiers in Energy Research , 7 (MAR).
