Blockchain has a country-size problem. Bitcoin mining uses as much electricity as a medium-sized European nation. Austria in fact; a that country ranks 41st in terms of energy consumption. 

In the power stakes, bitcoin has revealed its Achilles Heel: its decentralised structure creates a mammoth carbon footprint. For illustration, a single bitcoin transaction consumes as much energy as 100,000 Visa transactions. 

For all of its purported benefits, bitcoin currently has an outsized energy impact. It is estimated that the world’s foremost digital currency hoovers up between 8 and 15 gigawatts of continuous power according to the Cambridge Institute of Alternative Finance. New York City runs just on 6 gigawatts. 

The vast energy-guzzling is down to bitcoin’s proof of work mechanism (PoW). This network requires miners to expend substantial amounts of energy to validate transactions and earn rewards.

Turning up the heat 

As global warming concerns push climate change to top of the news agenda, the heat is also turning up on bitcoin’s PoW structure. And it is not just crypto-sceptics that are criticising the consumption largesse of bitcoin. Within the blockchain industry, the lines of battle are being drawn on energy usage. 

Ethereum’s founder Vitalik Buterin has now transitioned the Ethereum network from the energy-draining PoW to proof of stake (PoS).  PoS eliminates the need to solve complex equations, thus dramatically reducing intensive energy usage. Buterin, the outspoken blockchain influencer, has been arguing the case for PoS since 2017, on the grounds of reduced environmental impact amid accelerating global blockchain adoption.

But the bitcoin stalwarts are pushing back. They maintain bitcoin’s energy consumption is directly proportional to its security. And that its energy usage should be equated to its ability to solve a real world or social problem.  In the case of bitcoin, the positive societal impact is the creation of sound money and a truly decentralised currency backed by real-world energy. 

Defending democracy 

They also argue that bitcoin is democratic money, while PoS, instead of bestowing power to all, lends power to a small, select group, creating a leadership hierarchy. But while PoW holds a persuasive case, it remains difficult to overlook PoS’s ability to overcome the environmental challenge – clearly blockchain’s greatest existential threat as regulatory scrutiny tightens. And the numbers are profound. The Ethereum Foundation estimates transitioning to PoS cuts energy usage by a mind-bending 99.9%. Furthermore, the elimination of energy-sapping ASICs used by miners would significantly reduce bitcoin’s electronic waste footprint. 

Cardano founder, Charles Hoskinson recently took aim at bitcoin’s intense energy usage – arguing the energy problem is getting worse, not better. 

He stated bitcoin’s energy consumption had more than quadrupled since the beginning of its last peak in 2017 and believes it is set to get worse because energy inefficiency is built into bitcoin’s DNA. He also points out bitcoin’s carbon footprint will get exponentially worse because the more its price rises, the more competition there is for the currency and thus the more energy it consumes.

Of course, Hoskinson has skin in the game – Cardano uses a PoS consensus mechanism. But no matter how bitcoin proponents might want to spin it – the pressure on bitcoin’s environmental impact is set to grow.

Weighing the damage 

The question must be: how bad is it and what can be done to mitigate energy usage? There is some evidence that the estimates of bitcoin’s power consumption are overdone.  A recent peer-reviewed white paper indicated bitcoin’s blockchain swallows just half of the annual energy of previous estimates.

The Valuechain paper also had a swipe at the financial establishment. It pointed out that bitcoin is 56 times more energy efficient than the current banking system.  

What is more promising is that as per research released in January by the Bitcoin Mining Council, the worldwide bitcoin mining sector was being powered by an estimated 58.5 per cent renewable energy by the fourth quarter of 2021. 

And it can’t be argued that the industry has its head in the sand. For example, the 2021 Crypto Climate Accord’s overall objective is to decarbonize the global crypto industry by prioritising climate stewardship and supporting the entire crypto industry’s transition to net-zero greenhouse gas emissions by 2040. Since then, 150 blockchain firms have signed up to the accord.

Both Argo and DMG, two high profile bitcoin miners are signatories – with Peter Wall, CEO of Argo stating the accord helps to lay the groundwork for real, tangible action to address bitcoin mining’s impact on the environment. So while the challenge is steep, the directional of travel appears to be toward a green future. 

 Agent of change

Perhaps the irony of the industry squabbling is that blockchain itself could be a powerful agent in the battle against climate change. This is due to the technology’s ability to make energy grids more efficient, and greener. 

Once countries can generate low-carbon energy at scale, they can unlock the internet of things to measure production and demand in real time. Then blockchain technology can be applied to make sure power flows from where it’s produced to where it’s needed without human oversight. 

The PoW versus PoS debate will shape the future of blockchain and the trajectory of global adoption. In the case of ethereum, it is clear that transitioning to PoS removes the need for miners to burn energy to add to the blockchain and is a big win for the environment. But applying the same principle to bitcoin may dimmish its decentralised nature. 

Over the next decade we will see the PoW verus PoS battle play out on a global stage. The debate will not be limited to the environment, but will encompass elements of philosophy, democracy and economics – essentially the battle for blockchain’s soul.

What we hope is not lost in the debate is blockchain’s ability to empower humans to create more efficient structures and better societies. Whatever the outcome the good news is that blockchain is approaching a greener future – even if the path remains uncertain.