How Consensus Mechanisms Affect Energy Usage in a Blockchain ID 126119576 © Iurii Motov | Dreamstime.com Oct 1, 2019 12:58 pm GMT 298 views
Even though blockchain has become part of the daily lexicon, there are still quite a few misconceptions associated with the technology.Probably the biggest one has to do with its energy usage.A spate of media reports in the last couple of years have documented energy consumption for Bitcoin, blockchain’s most well-known application.Critics have latched onto those reports as proof that blockchain is an unsustainable technology.
But this conflation is incorrect and the cause of considerable confusion.
It is important to separate energy consumption for various cryptocurrencies from that of blockchain systems.Bitcoin and Ethereum are instances of applications of blockchain.Their energy usage is a function of the consensus mechanism used to decide on the integrity of a transaction occurring within the network.The consensus mechanism is generally an algorithm that is run on nodes (or systems with the mining software) in a cryptocurrency’s network.
The algorithm is programmed to choose a leader who produces a block of transactions occurring on the network for approval.Energy usage in a cryptocurrency network is a function of this action.
In some networks, the leader is chosen through competition.In others, it is chosen through staking, or the holding of coins for long periods of time.The size of the team used to arrive at that consensus is also negotiable and depends on several factors and terms of engagement between stakeholders.
As an example, consider the Proof of Work (PoW) consensus mechanism used by Bitcoin.In this mechanism, nodes or systems running the mining software compete with each other to solve cryptographic puzzles and win Bitcoin as a reward to become leaders.Brute force, in the form of multiple computation guesses carried out at lightning speed, is generally used to solve the puzzle and it requires energy in the form of high processing speed and graphics cards.
Because most cryptocurrencies are offshoots of Bitcoin (they have simply added select functionality to Bitcoin’s original code), they presumably have energy consumption requirements similar to Bitcoin.
The high energy consumption for Bitcoin is balanced by the relatively democratic nature of its network.Ideally, anyone running the mining software on their system has a fair chance of participating in validating a transaction’s integrity and becoming a leader.
This also multiplies energy requirements for the network due to the energy consumption for all nodes.
Ethereum, the world’s second-most valuable blockchain, has a reputation simila r to that of Bitcoin as far as energy consumption is concerned.It plans to move to Proof of Stake (PoS) mechanism in which coins are rewarded based on a node’s stake (in simple words, holdings of coins) in the network.The move is expected to dramatically reduce the network’s energy consumption because it does not require complex calculations.Only staking, or holding of coins for long periods of time, is required.Of course, this brings its own set of problems, such as centralization of consensus among select stakeholders with large holdings of its token.But that’s a completely different story altogether.
Bitcoin and Ethereum are examples of public blockchains or blockchains in which anyone can participate by downloading the mining software.
For purposes of data privacy, most industries are evaluating a private or a public-private hybrid blockchain.
An example of a private blockchain is Facebook’s Libra cryptocurrency and it uses a consensus algorithm called LibraBFT.(BFT stands for Byzantine Fault Tolerance, a method for reaching consensus in a dynamic group).LibraBFT is similar to PoS in that it relies on a messaging mechanism to mine coins instead of having nodes compete with each other.
Within energy markets, the Energy Web Foundation (EWF) has developed the Proof of Authority (PoA) algorithm for its blockchain.
The algorithm uses nodes or validators, who are governed by smart contracts.The validator nodes create blocks in a round robin fashion.
The validator will be skipped if it is offline.Based on a cursory reading, it seems that PoA is a classical consensus algorithm and relies on a method similar to that of BFT to arrive at a consensus.This, combined with the fact only a finite number of validators are required to arrive at a consensus, should translate to manageable energy requirements.(They haven’t released energy requirements for their consensus mechanism yet).The flipside is that validators in the network are restricted to select participants in the energy network, meaning that it is not a decentralized blockchain in the true sense of the technology..
