Green Coding and IT Energy Consumption: Blockchain and Cryptocurrencies

Welcome back to the fifth instalment of our series on “Green Coding and IT Energy Consumption.” In the previous blog post we delved into the world of Artificial Intelligence (AI) and its growing presence in modern IT. While AI gained prominence with high expectations, we explored a less-discussed concern – its substantial energy demands. We discussed the phases of AI energy consumption, rough estimates of its impact on tech giants like Google, and the need for proactive measures to address AI’s energy consumption.

In this edition, we delve into the fascinating yet energy-hungry world of blockchain technology and cryptocurrencies. Blockchain, celebrated for its decentralised and transparent nature, has found diverse applications beyond cryptocurrencies, but it comes at a steep energy cost. Let’s explore the intricacies of blockchain and the environmental impact of cryptocurrencies.

Blockchain: The Decentralised Ledger

Blockchain, the foundational technology behind cryptocurrencies like Bitcoin, has been hailed as a revolutionary concept. It enables systems to establish and maintain a shared, tamper-proof database in a decentralised manner. Essentially, a blockchain is an ever-growing ledger of transactions, distributed across multiple participants.

How Blockchain Works

In a blockchain, each new transaction is appended to the end of the ledger as a block. This block contains transaction details, a timestamp, and a cryptographic hash of the previous block. The immutability of the blockchain stems from the fact that altering any transaction would necessitate recalculating all subsequent hashes—a computationally intensive task.

Blockchain networks are managed by peer-to-peer software that employs consensus algorithms to validate and add new transactions. These systems, or nodes, independently maintain the entire blockchain, fostering trust among participants without a central authority.

The first blockchain emerged in 2008 with Bitcoin’s introduction. Since then, the technology has evolved, giving rise to various blockchain-based currencies, collectively known as cryptocurrencies, due to their reliance on cryptographic computations. Additionally, blockchains are used for smart contracts and non-fungible tokens (NFTs).

The Energy Challenge of Blockchains

Blockchain’s energy inefficiency arises from its decentralised and redundant structure:

Given these inherent inefficiencies, it’s crucial to assess whether blockchain truly offers a significant advantage over centralised solutions before opting for it, especially considering its substantial energy consumption. Moreover, blockchain-based solutions are more complex to design and maintain due to their decentralised nature.

Energy Consumption of Cryptocurrencies

While cryptocurrencies are just one application of blockchain technology, their energy consumption is a subject of significant concern.

Cryptocurrency Market Landscape

As of August 2023, the cryptocurrency market is dominated by a few major players:

Bitcoin: With a market capitalisation of $578 billion, Bitcoin leads the pack.

Ethereum: At $223 billion, Ethereum is the second-largest cryptocurrency.

Tether, BNB, XRP: These cryptocurrencies round up the top five with market capitalisations ranging from $83 billion to $34 billion.

However, the market value drops significantly after the top contenders, with the tenth-largest cryptocurrency only commanding a $7 billion market capitalisation.

Energy Consumption of Cryptocurrencies

The energy consumption of cryptocurrencies is closely tied to the blockchain technology they employ. Different cryptocurrencies use varying technologies, leading to vastly different energy footprints.

Bitcoin: The Energy Hog

Bitcoin, the pioneer of cryptocurrencies, relies on the energy-intensive proof-of-work consensus algorithm. This algorithm requires extensive computational work to validate transactions. As the network grows, so does the computational power required, leading to astonishing energy consumption figures.

As of August 2023, Bitcoin’s estimated annual energy consumption is approximately 107 TWh, equivalent to the energy consumption of an entire country like the Netherlands. A single Bitcoin transaction consumes around 635 kWh of energy, making it approximately 430,000 times less efficient than a credit card transaction. Furthermore, the environmental impact extends to the specialized hardware used for Bitcoin mining, which often lacks opportunities for reuse.

Ethereum: A Transformation

Ethereum, the second-largest cryptocurrency, made a pivotal change in September 2022 by transitioning from the proof-of-work model to the proof-of-stake model. In proof-of-stake, participation is based on the amount of currency staked as collateral to secure transactions. This shift resulted in a remarkable reduction in energy consumption.

Before the transition, Ethereum’s proof-of-work model consumed around 83 TWh annually. Afterward, it plummeted to a mere 20 MWh. An individual Ethereum transaction now consumes only about 0.03 kWh, equivalent to approximately 40 credit card payments.

Diversity in Energy Consumption

While Bitcoin exemplifies energy inefficiency, other cryptocurrencies have implemented more energy-efficient solutions. For instance, Binance Coin (BNB) uses a proof-of-stake-authority model with only 21 servers responsible for transaction verification. In May 2022, a single BNB transaction’s energy consumption was estimated to be a minuscule 0.008 Wh—far less than a credit card payment.

The diversity in energy consumption among cryptocurrencies underscores the need for careful consideration when engaging with these digital assets.

Taking Responsibility

If you own Bitcoins, the most environmentally responsible course of action is to store them in a cryptocurrency wallet and refrain from selling them, as selling generates new energy-consuming transactions. Additionally, consider whether the energy footprint of cryptocurrency investments aligns with your environmental values.

Ultimately, the allure of cryptocurrencies lies largely in speculation, with limited practical use cases. If you choose to engage with cryptocurrencies, do so with an awareness of their energy consumption impact.

In conclusion, blockchain technology and cryptocurrencies offer intriguing possibilities but come at a significant energy cost. As the world grapples with the challenges of energy sustainability, it is essential to evaluate the environmental consequences of these innovations and make informed choices that align with a greener future.

In our next post, we will continue our exploration of the Internet of Things (IoT) and its profound impact on energy consumption. As the IoT landscape continues to expand and influence various aspects of our lives, we will delve deeper into the strategies and technologies that can help mitigate its energy footprint.

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