Bitcoin, the first cryptocurrency launched in 2009, often got a bad press. And in particular due to the huge amount of energy needed to validate transactions on its blockchain, the technology on which all operations are performed and protected. A Cambridge University study indicates the high electricity consumption induced by the Bitcoin blockchain, which estimates at around 128 terawatt hours (TWh) per year as of June 10, 2022, slightly less than the amount of electricity needed to mine gold in the year. world and more than the annual consumption of a country like Poland.
Furthermore, Bitcoin tends to increase its energy needs over time. The blockchain is in fact based on a mechanism considered inviolable to validate transactions in cryptocurrencies, but also very greedy in electricity. This is the mining process that works with proof of work (“proof of work” in English): machines – in particular ASIC composed of electronic chips programmed to mine bitcoins – run at full speed to try to solve a very mathematical equation. complex.
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The machine that finds the solution first gets the right to secure the transaction, which results in the creation of a new block on the blockchain and in return bestows a bitcoin reward. In this case today 6.25 bitcoins, but this reward should decrease over time.
In addition to Bitcoin, the Ethereum, Litecoin and Monero blockchains in particular operate with a proof-of-work mechanism. But many cryptocurrencies created in recent years are instead based on a blockchain with a proof of stake mechanism, due in particular to the excessive consumption of electricity required by mining and the “proof of work”. “.
Proof of stake much less expensive than proof of work
Proof of the bet is equivalent to putting your cryptocurrency tokens into play to get the validation of a block. Token holders wishing to secure transactions are then drawn by lot. “This is called a probabilistic model, with a tie,” explains Anaïs Bouchet, in charge of assessing the impact of projects at Cardashift, a company specializing in blockchain to finance environmental and social initiatives.
“All validators on the network have the ability to validate a block, but that possibility is weighted by the number of tokens held,” he continues. “The blockchains that work with proof of stake are clearly the ones that consume the least”, Anaïs Bouchet finally points out. The best known of these are Polkadot, Cardano and Solana.
“The breakeven, in terms of energy consumption, is very low. The computing power required is ridiculous, ”adds Hadrien Zerah, CEO of Nomadic Labs, responsible for the development of the Tezos blockchain in France, which also works with proof of stake. This protocol, originally designed by two Frenchmen, has an annual carbon footprint equivalent to that of just 17 European households, according to an audit by PwC published in December 2021.
It is therefore no coincidence that Ethereum wants to move from proof of work to proof of stake. The blockchain is expected to undergo a major update, dubbed “The Merge”, which should finally come to fruition this summer. Proof of participation “is over 2,000 times more energy efficient,” says Ryan Shea, crypto economist at fintech Trakx, quoted in the 21 Million newsletter. “This equates to a reduction in energy consumption of around 100 terawatt hours (TWh) per year,” according to him, or the annual electricity consumption of more than 20 million French households.
Overlays that consume less electricity
Victim of its own success, with the boom in decentralized finance (DeFi) applications, the Ethereum blockchain is becoming increasingly saturated. Transaction processing times are getting longer on the network and the associated fees have skyrocketed. Solutions have already begun to emerge to overcome this problem of “scalability”, that is, the large-scale use of technology.
The Polygon blockchain, which is grafted onto Ethereum as a second layer (“layer 2”, in English), thus makes it possible to multiply transactions without creating congestion. Other protocols have been developed and can also be added to Ethereum to improve its “scalability”, such as Fantom or BNB Chain launched by the cryptocurrency trading platform Binance. Bitcoin, which is also experiencing network latency issues, sees the Lightning Network protocol play this role.
In addition to improving “scalability,” these overlays have the advantage of reducing the electricity consumption required to validate transactions. Polygon, for example, “pre-validates transactions with a proof-of-stake mechanism, then compiles them into one that will eventually be validated by the Ethereum consensus mechanism,” explains Anaïs Bouchet. Therefore, “1,000 transactions can be performed on Polygon by requiring a single validation on Ethereum”.
To get an idea of the energy consumption level of each blockchain, “the ideal is to compare the amount of kilowatt hours needed per transaction,” according to the engineer:
- Bitcoin, and its proof-of-work mechanism, “consumes about 700 kilowatt hours (kWh) to get through a transaction, or the energy needed to travel 1,400 km in a diesel car that consumes 5 liters / 100 km”, specifies- she . Ethereum, which still works today with proof of work, however, requires less energy: about 140 kWh per transaction.
- Overlays (layer 2) of the Ethereum blockchain, such as Polygon, require 1 to 10 kWh per transaction, or the equivalent of 5-20 km with the same type of car.
- Blockchains like Cardano or Solana, with a proof-of-stake mechanism, drop to just 1-10 watt-hours (Wh) per transaction – the equivalent of a web search with Google.
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Each blockchain has its own advantages and disadvantages
In addition to energy consumption, each blockchain has its share of defects and qualities. Proof of participation, for example, tends to benefit holders of many cryptocurrency tokens, which are more likely to be mined. “It is a small group of people in possession of many tokens who control the creation of cryptocurrency,” points out Guillaume Berche, product owner of the cryptocurrency exchange platform Paymium. “It’s a replica of the current centralized financial system, when Bitcoin implies a shift paradigm,” he believes.
Some therefore criticize the proof of stake for creating a form of oligarchy, when the initial philosophy of Bitcoin is based on the decentralization of exchanges and on the modalities of governance.
“It’s the same with proof of work and mining,” retorts Hadrien Zerah, of Nomadic Labs. “The more devices and computing power you have to mine, the more blocks you produce and the more you can afford to buy back mining hardware.” Guillaume Berche recognizes “a concentration effect”, but rejects any oligarchic functioning of Bitcoin “as for blockchain with a proof-of-stake mechanism”.
Polygon, an Ethereum overlay, also works with a consensus mechanism to validate “fairly centralized and less secure” transactions, Anaïs Bouchet points out.
In general, all blockchains try to respond to the triptych of “security, scalability and decentralization”. They are often less efficient on one of these three dimensions than they are better on another. For example, Solana’s blockchain, under stake test, is more conducive to “scalability”, but it has suffered heavy disruptions and appears more vulnerable than Bitcoin, which is less “scalable” on its side.
One of the great current challenges is therefore to reduce the cumbersome operation of the blockchain to allow its use on a large scale and reduce its energy needs. All this, with the least possible damage to the levels of security and decentralization of the network.
It also depends on the energy used.
Beyond the consumption of electricity, the environmental impact of a blockchain, and in particular of Bitcoin, can only be estimated by looking at the energy sources used. Bitcoin is famous for running many machines at full power to validate transactions: a European draft regulation even considered a ban on mining, the proof-of-work mechanism used by cryptocurrencies.
But it remains difficult to know in detail the origin of the energy used by the miners. Many report the surplus of electricity produced from renewable energies, which would not be used for any other activity and would otherwise be lost. This is the case of the French mining companies Starmining and BigBlock Datacenter, which explain that they take advantage of the advantageous price of these surpluses.
But there is no independent study on the subject. And mining still relies heavily on fossil fuels, such as electricity produced by coal-fired power plants. According to the latest report from the Bitcoin Mining Council, which is made up of mining companies, about 58.4% of miners around the world use a mix of renewable energy. A figure on the rise, but which still shows the way to go for Bitcoin to be considered ecological