Blockchain is unsustainable as it uses too much energy.
Before doing the work to understand blockchain technology, I believed this statement to be true. I had seen it in the news and on social media so it must be correct. But like most things, it is more complicated than this. I am still getting to grips with this technology but here are my thoughts on blockchain and energy usage. If you are also new to this area hopefully you find this overview helpful.
One of the foundational features of blockchain technology is data security. Once data is recorded on a public blockchain it is essentially immutable, meaning it cannot be edited or deleted. This security comes at a cost. For a traditional database, this cost would be a 3rd party like a bank or accountancy firm, to oversee the transactions and ensure their validity.
Blockchain, being decentralized and having no centralized ‘middle-man’ requires another approach to ensure the security of the data and transactions. This is achieved via consensus mechanisms.
There are several different types of consensus mechanisms but the two most common ones are proof of work (PoW) and proof of stake (PoS).
The Bitcoin blockchain uses PoW. On a PoW blockchain, so-called ‘miners’ compete to validate transactions and receive rewards, such as cryptocurrency tokens. Validating transactions involves solving very difficult computational problems, requiring vast amounts of computing power, hardware, and energy in the form of electricity. Given this need for energy, many bitcoin mining companies are looking to renewable energy sources, which is leading to more investment in greener forms of energy such as thermal, solar and wind.
Unlike PoW, PoS requires people who want to verify network transactions to stake (lend) their network cryptocurrency for a chance to do so and receive a reward in return. An algorithm randomly chooses which validator will verify the block. Because PoS does not require validators to solve computational problems, PoS requires no expensive hardware or energy, just the cryptocurrency that is being staked.
The Ethereum blockchain currently uses PoW, but it is in the process of moving to PoS. According to a recent article in Forbes, this will reduce the energy consumption of Ethereum-based tokens and blockchains by an estimated 99.95%. As most non-fungible token (NFT) projects use the Ethereum blockchain this change from PoW to PoS should have a huge impact on energy consumption moving forward.
So when people talk about the energy requirements of blockchain they are most likely referring to Bitcoin, and whilst this network does require tremendous amounts of energy to remain secure, it does appear that the industry is moving towards greener sources of electricity. Given this, together with the move towards non ‘mining’ consensus mechanisms such as PoS and the energy saved by not requiring centralized 3rd party validators, blockchain-based projects could end up being one of the most sustainable models in the future.