Today, the role of, THE PROBLEM WITH OFFSETTING | Nevertheless, we will stick to the common usage of the phrase here.) This argument is, however, based on the assumption that the economic quantities from the estimate of the upper bound (2), namely, the prices for electricity and the respective cryptocurrency, remain constant. However, compared to a major Proof-of-Work blockchain, energy consumption is still negligible. In: Proceedings of the 51st Hawaii international conference on system sciences, pp 3507–3516, Georgiadis E (2019) How many transactions per second can bitcoin really handle? Accessed 05 Feb 2020, Coinswitch (2019) Bitcoin mining hardware. In Sect. Google Scholar, Beck R, Avital M, Rossi M, Thatcher JB (2017) Blockchain technology in business and information systems research. Even for a million nodes – and taking into account differences in efficiency between common and specialized mining hardware, given that ASICS can be millions of times more efficient than CPUs at computing hashes – the energy consumption associated with mining is still orders of magnitude higher than the energy consumption required to maintain the nodes (De Vries 2018). Such a system retains many of the benefits of a blockchain based one (transparency, trustlessness, immutability, etc.) It will also involve a discussion about the compromise between the degree of decentralization, security, performance, energy consumption, and further metrics which are of importance for blockchain-based use-cases. By contrast, for large systems consisting of many nodes, the natural redundancy in a blockchain can lead to much higher energy consumption. This work was supported by PayPal and the Luxembourg National Research Fund FNR (P17/IS/13342933/PayPal-FNR/Chair in DFS/Gilbert Fridgen. Blockchains, in general, achieve this synchronization by linking transactions to form batches (“blocks”) and adding these, sequentially, to the existing linear data structure (“chain”). In: International workshop on peer-to-peer systems, pp 251–260, Eklund PW, Beck R (2019) Factors that impact blockchain scalability. energy consumption}\times \text{min.electricity price.} 2019). Stay up-to-date with monthly news and updates. Use blockchain to spur energy-efficient transportation methods. Therefore, it is not necessary to tie voting weight to a scarce resource here, and one can reach consensus using some kind of election in which everyone has a single vote. © 2021 Springer Nature Switzerland AG. Strikingly, such blockchains are “energy-intensive by design”. Some DAG based distributed ledgers are already in operation [5][6]. This indicates that the total energy consumption of all PoW cryptocurrencies other than Bitcoin will fall below our upper bound for the energy consumption of Bitcoin. Entering the current numbers – retrieved from Coinmarketcap (2020) and Coinswitch (2019) on 2020-02-05 – into (1) yields a lower bound for power consumption of 6.8 GW, which equates to an annual energy requirement of at least 60 TWh. A manifestation of this fact could be observed when in the course of a general drop in financial markets due to the Corona pandemic, market prices for Bitcoin dropped by up to 40% in March 2020. While a lot of today’s mining relies on non-renewables, mining provides an ideal target for renewable energy. Popular implementations of such permissioned blockchains are Hyperledger Fabric and Quorum. 2019). We argued that using blockchain technology with non-PoW consensus – which is the case in an increasing number of business applications – already substantially mitigates sustainability issues. 2009). Our contribution demonstrates that the energy consumption of blockchain technology differs significantly between different design choices. One can also determine an upper bound for the energy requirement of the mining process for a PoW blockchain, assuming honest and rational miners whose utility from mining is solely financial profit: Participation in the mining process is only profitable as long as the expected revenue from mining is higher than the associated costs: A few easy manipulations yield the desired upper bound: As hardware costs represent a substantial part of the costs side, and electricity prices vary significantly around the globe, we cannot assume that the upper bound is very tight. A legitimate cause for concern in the use of public Blockchains is the significant environmental impact from the energy consumption required. We conclude with with an outlook and suggested topics for further research in Sect. However, as discussed in Sect. 2019). Whereas in Proof of Stake miners stake cryptocurrency tokens, which they stand to lose if they behave badly. During the blockchain process proof-of-work (PoW) has to be maximized and this PoW chains rely on the network resources consumption to protect them from malicious attackers. With a commitment to reinvest their proceeds into renewable energy infrastructure, as well as offering dividends to token-holders to further incentivise participation. However, we also argue that the energy consumption associated with a widespread uptake of PoW cryptocurrencies is not likely to become a major threat to the climate in the future. Trade-offs in distributed ledger technology designs. https://coinswitch.co/news/top-10-best-bitcoin-mining-hardware-in-2020-latest-review-and-comparison. Such channels usually require a transaction on the blockchain, in the course of which off-chain payment channels are created and terminated. (The Energy Consumption of Blockchain Technology: Beyond Myth) additionally states that in some instances, such as supply chain, the energy consumption of blockchain is still a massive improvement to the carbon emissions caused by the current system, which often includes a huge paper trail and generally slow and laborious processes. IEEE Transact Eng Manag, to appear, Mora C, Rollins RL, Taladay K, Kantar MB, Chock MK, Shimada M, Franklin EC (2018) Bitcoin emissions alone could push global warming above 2\(^\circ\)C. Nat Clim Change 8(11):931–933, Nakamoto S (2008) Bitcoin: a peer-to-peer electronic cash system. If you’re not familiar with blockchain technology, read our, A legitimate cause for concern in the use of public Blockchains is the significant environmental impact from the energy consumption required. This gives a lower bound of the energy consumption of an arbitrary PoW blockchain: This estimate indicates the lower bound, reflecting the likelihood that more solutions are found than disseminated, that further computations – in addition to mining – are being carried out, and that not every miner has the most energy-efficient hardware. It, thereby, addresses the energy consumption of IS, in general a subject for which BISE traditionally takes responsibility  (Buhl and Jetter 2009; Schmidt et al. We illustrate that these kinds of blockchain technology already consume several orders of magnitude less energy than the first generation PoW blockchains and that these blockchains, thus, largely mitigate the energy problem. On the other hand, the workload associated with redundant operations, e.g., the verification of new blocks, can be significantly reduced, which also mitigates the redundancy issue. Bitcoin is not the only cryptocurrency on the block though. It calculates that Bitcoin's total energy consumption is somewhere between 40 and 445 annualised terawatt hours (TWh), with a central estimate of about 130 … Finally, in some cases it may not be necessary to use a distributed ledger at all. Bitcoin’s key innovation was to provide a suitable consensus mechanism for the use in this scenario. Appl Innov 2:6–19, De Angelis S, Aniello L, Lombardi F, Margheri A, Sassone V (2017) Pbft vs proof-of-authority: applying the cap theorem to permissioned blockchain. mining costs} \\&\ge \text{tot. We also argued that although the energy consumption of non-PoW blockchains and in particular permissioned blockchains which are used in enterprise context is generally considerably higher than that of non-blockchain, centralized systems, it is many orders of magnitude lower than that of PoW cryptocurrencies such as Bitcoin. The details of the latter can be found here. Sedlmeir, J., Buhl, H.U., Fridgen, G. et al. For example, PBFT consensus overhead scales at least quadratically with respect to the number of nodes in the network and is hence – by contrast to PoW and PoS – highly sensitive on the network size. 2, we first provide some technical background for Proof-of-Work (PoW) blockchains and determine the level of their energy consumption. If you’re not familiar with blockchain technology, read our introduction and FAQ. A simple server can operate transactions with very low energy consumption. However, as cryptocurrencies currently process only few transactions per second, the theoretical limit is typically in the low two- or three-digit range, e.g., approx. Nat Sustain 1(11):711–718, Labazova O, Dehling T, Sunyaev A (2019) From hype to reality: a taxonomy of blockchain applications. We can distinguish between two approaches to reducing redundancy: reducing the degree of redundancy, i.e., the number of nodes that perform certain operations, and the workload associated with operating a transaction. In practice, however, the blocks cannot be enlarged at will. This article challenges the common prejudices regarding the energy consumption of the supposedly homogeneous blockchain technology by providing a detailed analysis of current scientific knowledge. Miners use up an estimated 29.05TWh of electricity annually. All numbers given here should be taken with caution as they are highly dependent on the precise architecture, security measures, type of hardware, and other parameters. As an example of a small-scale enterprise blockchain, we refer to a Hyperledger Fabric architecture with 10 nodes, each on cloud instances with 32 vCPUs and therefore likely consuming a few thousand Watts in total. The Energy Consumption of Blockchain Technology: Beyond Myth, $$\begin{aligned} \text{total power consumption} \ge \text{total hash rate} \times \text{min energy per hash}. On the other hand, we know from other areas of IT that significant energy savings can be enabled by process optimization and digitization. That’s 0.13% of the world’s annual energy consumption, which is more than 159 countries including nearly all of Africa. Designed as a proven mechanism to secure public blockchains, such as Bitcoin, it incentivises the participants of the blockchain (miners) to spend large amounts of electricity in exchange for Bitcoin. Correspondence to This perception inevitably raises concerns about the further adoption of blockchain technology, a fact that inhibits rapid uptake of what is widely considered to be a groundbreaking and disruptive innovation. Yet, this has some natural limits: Currently, transactions are operated “naively” on all nodes in the sense that all transaction-related data must be provided on-chain and all nodes recompute every step on their own. Consequently, blockchains underlying such open systems, which allow for unrestricted access and participation, are termed permissionless. Such a system retains many of the benefits of a blockchain based one (transparency, trustlessness, immutability, etc.) To justify the validity of our upper bound, we argue that the energy consumption associated with maintaining the nodes, mining excluded, is, in fact, negligible compared to the energy consumption of mining for today’s major PoW blockchains: To validate a single block in today’s cryptocurrencies, every node must typically download up to a few Megabytes of data and perform as many as several thousand hash computations, as well as a comparable number of corresponding computations and database operations. \end{aligned}$$, $$\begin{aligned} \text{mining rewards} + \text{transaction fees}&= \text{tot. One estimation is that Bitcoin alone consumes 57.8 TWh each year – close to the annual energy consumption of Algeria. We also observe that the expected energy consumption of the 5 investigated cryptocurrencies strongly correlates with their market capitalization, which makes sense since parameters, such as block reward per time, are comparable among the cryptocurrencies and total transaction fees are generally low compared to block rewards. (Strictly speaking, we cannot consume energy, but merely change its form from valuable (e.g., electricity) to less valuable (e.g., heat) energy. This information is publicly available and can, therefore, be freely used in creation of shards. The network is composed only of user machines operating as usual, with only some computer power dedicated to the network. This is, in fact, a reasonable approximation: for the lower bound, we only lose some tightness. Bus Inf Syst Eng 1(5):400–402, Stoll C, Klaaßen L, Gallersdörfer U (2019) The carbon footprint of bitcoin. As a result, consumers are exposed to the real cost of energy, which might result in more rational energy consumption or suitable price signals for demand response . Based on such investigations and more reliable numbers, and the development of the most influential blockchain use-cases in practice, we will finally be in a position to decide whether or not the energy consumption of blockchain technology outweighs the savings in a specific scenario. . For example, sharding is very difficult to apply to PoW blockchains, because one has to make sure that, within a shard, computing power is roughly equally distributed to maintain a balance of voting weight among the associated nodes. Since, on a permissionless blockchain, the inclusion of a distinct entity to provide accounts and passwords is not viable, authentication based on a public key infrastructure is highly suitable. For example, in a 1 MB block used in Bitcoin, there can only be a maximum of around 2000 transactions. The Ethereum Energy Consumption Index has been designed with the same purpose, methods and assumptions as the Bitcoin Energy Consumption Index. Over the course of a year that’s equal to around 64 TWh or terawatt hours of energy consumption. Considering the current discussions regarding climate change and sustainability, these statements could therefore inhibit or delay the widespread adoption of blockchain technology  (Beck et al. We see that the lower and upper bounds are, in general, quite close and, therefore, represent a meaningful estimate of the actual energy consumption for each of the 5 major PoW cryptocurrencies. Fortunately, the PoW consensus mechanism, which – as already described – was designed to be energy-intensive, is not the only way to achieve consensus in a distributed system. However – as has already been pointed out in a critical ’Matters Arising’ response by Dittmar and Praktiknjo (2019) – when increasing the blocksize and, therefore, the throughput, according to our previous arguments, the energy consumption associated with mining would remain constant, and the energy consumption associated with the remaining tasks would still be negligible. The pseudo-randomness typically comes from a subset of the previous blocks) that determines who is allowed to build (“mint”, “forge”, “bake”) and attach the next block. State … while massively reducing energy costs with only a few machines required to host and audit the ledger. Business & Information Systems Engineering Accessed 05 Feb 2020, Crosby M, Pattanayak P, Verma S, Kalyanaraman V et al (2016) Blockchain technology: beyond bitcoin. Both the current hash rate of a public blockchain and the energy efficiency of the most efficient mining hardware can easily be retrieved from online material. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/. In a PoS blockchain, voting power is tied to the capital deposited by each node. (2017). This implies a drop of the upper bound (2) in our model by the same rate, and, indeed, the total hash rate was observed to drop by approximately 30% shortly after: Seemingly, mining was no longer profitable for some miners at this point (Beincrypto 2020). https://pdfs.semanticscholar.org/4d5b/9fb1c4205b61060117e3c71b04464c2a1c77.pdf. In the long term, it is to be expected that even with groundbreaking innovation in the energy efficiency of mining hardware, Bitcoin’s and other PoW blockchains’ energy requirements will remain at the previous level unless the remaining economic quantities on the right-hand side of (2) change considerably. According to the University of Cambridge’s bitcoin electricity consumption index, bitcoin miners are expected to consume roughly 130 Terawatt-hours of energy (TWh), which is … When talking about blockchain technology in academia, business, and society, frequently generalizations are still heared about its – supposedly inherent – enormous energy consumption. There are, however, controversial discussions in the community. However, it is still many orders of magnitude less than for the current PoW blockchains such as Bitcoin with about \(10^9\) J per transaction. https://coinmarketcap.com/. Yet, these bounds are very consistent in the case of all of the cryptocurrencies we investigated. The main result of the discussion about blockchains with alternative consensus mechanisms is that, by getting rid of energy intensity by design, their energy consumption is orders of magnitude lower compared to PoW-blockchains. However, we are confident that solutions will be developed to realise the benefits of decentralized computing without the excessive energy consumption of current systems. Hence, if the prices for crypto-coins and electricity prices remain at the same level, one could even expect that in the long run, the energy consumption of PoW blockchains will also halve in each of these periods, until the rewards from mining are comparable to the total transaction fees. A more complex database, such as CouchDB, with one backup still manages more than \(10^3\) transactions per second on the same hardware, resulting in at most 0.1 J per transaction (own measurements). A legitimate cause for concern in the use of public Blockchains is the significant environmental impact from the energy consumption required. This means that, overall, there would be no noticeable increase in total energy consumption. One of such issues is the energy consumption. Recent developments in. One example is the DAG (Directed Acyclic Graph), which does not require any miners. Compared to a global banking network with similar capabilities, but centrally controlled, this is a vastly higher energy requirement. Accessed 05 Feb 2020, Buhl HU, Jetter M (2009) BISE’s responsibility for our planet. In this example, the interpretation is that the network does not require any incremental energy beyond what user machines would already be using. Moreover, not every household can afford a high bandwidth and large hardware storage, so higher requirements can also lead to a lower degree of decentralization. For example. Generally speaking, the primary motivations behind all of the concepts presented in this section that may help to reduce redundancy are increased scalability, throughput, and privacy for blockchain solutions. 2019). For permissioned blockchains, this might be particularly relevant when enterprises have to decide for or against a particular blockchain implementation. Consequently, the more valuable a PoW cryptocurrency is, the better it is protected against attacks, confirming that PoW is, indeed, a thoughtful design. This benefits the masses because it reduces control from central authorities, plus it allows users to be truly in charge of their energy supply. This gives an upper bound of approximately 125 TWh per year for the energy consumption of Bitcoin, using data from Coinmarketcap (2020) for 2020-02-05. blocktime}\times \text{min. This is in the range of the annual electricity consumption of countries such as Austria (75 GWh) and Norway (125 GWh). Three areas of research show promise here. We strive to be an up-to-date resource for innovative businesses and individuals who are committed to long-term thinking when it comes to the creation, purchasing and life-cycle of products. Other participants have to follow suit with the competition. Are you a brand interested in how blockchain technology can bring transparency to your supply chains? Coupled with the competitive nature of mining, Bitcoin’s exponential growth is largely to blame for this rampant energy consumption. https://beincrypto.com/bitcoins-hash-rate-retraces-40-this-month-slips-under-100-ehash-s/. Since mining fees are currently negligible compared to block rewards, the upper bound (2) is proportional to the electricity price and block reward. To make interactions with our website easy and meaningful, we use Cookies. By continuing to use this site, you consent to this policy. (2018) extrapolate the energy consumption of a single Bitcoin transaction to the order of magnitude required for handling payments on a global scale. In Sect. J Assoc Inf Syst 19(10):1020–1034, Beincrypto (2020) Bitcoin’s hash rate retraces 40% this month, slips under 100 ehash/s. In Sect. One perspective to take is that it is easy to estimate Bitcoin’s energy consumption by looking at “how hard” the miners have to work. MIS Q Exec 18(4):263–279, Schmidt NH, Erek K, Kolbe LM, Zarnekow R (2009) Sustainable information systems management. The mining process is economically incentivized in that participants are rewarded for every valid block that is found and disseminated. Accessed 05 Feb 2020, Gudgeon L, Moreno-Sanchez P, Roos S, McCorry P, Gervais A (2019) SoK: off the chain transactions. Cryptology ePrint Archive, Report 2019/416, https://eprint.iacr.org/2019/416. The energy consumption of Bitcoin, Ethereum, and other Proof of Work-based blockchain networks has become a popular topic of discussion in recent weeks. while massively reducing energy costs with only a few machines required to host and audit the ledger. Finally, in some cases it may not be necessary to use a distributed ledger at all. By contrast, traditional payment systems process, on average, thousands of transactions per second, and as many as tens of thousands at peak times. Theoretically. Specifically, Bitcoin combined several well-known concepts from cryptography to form the so-called PoW. And Bitcoin's energy consumption isn't tied to the number of transactions the network handles. Transparent ledger systems such as these are in the early stages of development and currently suffer from issues related to their centralized nature, nonetheless an interesting area to watch. This is because, the larger a block is, the longer it takes for it to be propagated by the worldwide blockchain network. As PoS and PoA, these further concepts typically do not involve a cryptographic puzzle, except for some concepts which try to establish some kind of “useful Proof-of-Work” which solves puzzles that are in some way meaningful for business or science. The possibilities above relate to … This could be significantly improved by storing and verifying only short correctness proofs on a blockchain and distributing the larger, plaintext data on another layer to the relevant participants. Accordingly, based on our arguments regarding the energy consumption associated with operating transactions in Sect. Are you a brand interested in how blockchain technology can bring transparency to your supply chain? For non-PoW blockchains, however, the energy consumption related to consensus is no more enormous, and, therefore, the contribution to total energy consumption by redundant operations may be significant. Note that (1) does not depend on any other parameters and, therefore, gives a very reliable lower bound. This refers to the right to create a new block from a subset of queued transactions when one finds a solution to a cryptographic, computationally intensive puzzle. Since energy costs outweigh hardware costs in the long run, participants with improved hardware can solve more puzzles at the same energy costs. mining revenue} \\&\ge \text{tot. Payment hubs, a generalization of payment channels to multiple parties, e.g., Nocust, or connections between them, e.g., Lightning for Bitcoin or Raiden for Ethereum, are the focus of active research (Gudgeon et al. However, we argue that, in addition to consensus, the redundancy underlying all types of blockchain technology can make blockchain-based IT solutions considerably more energy-intensive than a non-blockchain, centralized alternative. In this article, we first analyzed the energy consumption of today’s prevailing PoW blockchains, which underly most cryptocurrencies. The Cambridge Bitcoin Electricity Consumption Index (CBECI) provides a real-time estimate of the total electricity consumption of the Bitcoin network. Accessed 05 Feb 2020, O’Dwyer KJ, Malone D (2014) Bitcoin mining and its energy footprint. Bus Inf Syst Eng 59(6):381–384, Beck R, Müller-Bloch C, King JL (2018) Governance in the blockchain economy: a framework and research agenda. More precisely, there is a random mechanism (there are no truly random number generators for classical computers, but, as a first approximation, this heuristics provides a good indication.