Cryptocurrency mining, “an environmental disaster”, “a danger to the planet”, “an energy-consuming monster”.
Bitcoin and Co are booming on the markets but it’s also on the receiving end of criticism from environmental organisations.
For more than a year, an increasing number of articles criticize the fact cryptocurrency mining uses an incredibly large amount of energy. According to the media, Bitcoin uses more electricity each year than countries such as Ireland, Morocco or Lebanon.
Is all the fuss true? Let’s explore the dark face of cryptocurrency mining.
Cryptocurrency mining and Finding
The most well-known source on the subject is Digiconomist. According to the US-based platform specialised in cryptocurrency, Bitcoin currently uses at least 70 Terawatt hours (TWh) per year. This is the equivalent of the yearly electricity production of seven nuclear power plants as powerful as the Leibstadt plant. The cause of this extreme cryptocurrency mining usage? The blockchain algorithm behind Bitcoin.
This cryptocurrency mining uses a “proofof-work” system. Concretely, to add blocks to the chain and verify their authenticity, miners must solve complex mathematical problems with the help of super-powered computers. While many miners tempted by the potential reward can participate, only the first miner to find the solution is rewarded and currently receives 12.5 Bitcoins per block mined.
The advantage of this cryptocurrency mining protocol is that it makes Bitcoin essentially inviolable – one would need more than 50% of the total calculating power to hack the system. But competition among miners leads to significant energy use. As a result: “Since it was created in 2009, Bitcoin has proved to be secure. No one has been able to pirate it,” said Daniel Gasteiger, co-founder of Trust Square. “But this security comes at a price: blockchain is absolutely not efficient.”
Cryptocurrency mining and Blockchain technology
And that won’t change any time soon: as time goes by, the number of transactions increases, the number of miners increases and energy consumption spikes accordingly. According to Digiconomist, Bitcoin’s electricity consumption reached 35 TWh yearly by the end of 2017, which is just half of its current energy use. “Today, energy is a major obstacle that hinders the implementation of this blockchain technology in other industries,” said Romain Bonenfant from the firm Emerton. “That’s why all the players are working to develop more energy-efficient systems.”
For example, Ethereum, the blockchain used for cryptocurrency Ether, already consumes less energy than Bitcoin (10 TWh per year in 2017) while still using the same proof-of-work system. But in order to significantly reduce electricity consumption, we need to change the transaction verification protocol. “There are already many alternatives to proof-of-work,” said Christine Hennebert, blockchain expert and cybersecurity researcher at the French Alternative Energies and Atomic Energy Commission (CEA). “With Ripple’s XRP system, for example, all the tokens already exist; they are pre-mined, so to speak, which reduces energy use. But Ripple is a closed system that sort of goes against blockchain’s decentralised philosophy.”
Other cryptocurrency mining economic systems are used, such as “proof-of-stake” like Peercoin or Qora. In these cases, only users who have a certain amount of cryptocurrency can claim to validate additional blocks and therefore receive the reward. This drastically reduces the number of competing miners and, as a result, lowers cryptocurrency mining energy consumption.
Cryptocurrency mining and innovation
The idea piqued the interest of Ethereum developers. They are currently experimenting with a “proof of participation” consensus mechanism called Casper. But the problem is that this system goes back to a plutocracy, where only the richest have power. This is incompatible with the libertarian origins of cryptocurrency. Other cryptocurrenc mining variations exist. Such as “proof of importance”, which rewards the oldest miners, or “proof of activity”, which rewards the most active members.
“Each of these systems has its own advantages and disadvantages. While they consume less energy than proof-of-work, it seems as less secure,” said Bonenfant. “That’s not necessarily a problem, because based on the usage of the technology, companies would need either more or less security, which means it would consume more or less energy.”
This is the key point: adapt cryptocurrency mining technology. A blockchain’s energy consumption adapted to its function and equal to the value it creates. “People can’t stop criticising Bitcoin for its energy use. But it’s a hypocritical argument, because absolutely everything consumes energy,” said Balva. “Watching cat videos on YouTube uses an enormous amount of energy but no one complains about that. And one Google search uses as much electricity as if you leave a light on for one hour! At the end of the day, Bitcoin’s impact isn’t that high, given its price (approximately $8,000 currently). How much energy would it take to mine gold with the same value?”
Future and cryptocurrency mining
In any case, Bitcoin’s energy impact could be lowered soon. Since 2014, US developers Joseph Poon and Thaddeus Dryja have been working on a project called Lightning Network. It adds an overlay to the Bitcoin blockchain. Concretely, only some information is written in the chain. The rest accounted for elsewhere. For example, a shop accepting Bitcoin could send its total revenue at the end of the week instead of after every transaction. This would reduce the number of transactions to record on the chain and as a result reduce energy consumption.
Blockstream, one of the biggest companies in the industry, has been testing this technology since 2015. And it has successfully routed its first transactions via Lightning in 2017 on the Bitcoin blockchain. Ethereum also has its own project, the Raiden Network. And other blockchains are planning to implement Lightning, such as Litecoin, Ripple and Zcash. 2019 will be the year of the first launches. Energy consumption of blockchains remains a key issue, but it’s only a matter of time. Let’s hope that we will soon have cryptocurrency mining with energy efficiency adapted to their functionality.