Data & Analytics

Why Not All Blockchain Has a Heavy Carbon Footprint

The carbon footprint of Bitcoin and other cryptocurrencies has been making headlines recently. This article explains what drives their energy consumption and presents alternative approaches.

Bitcoin mining. A mine with real hardware. Symbols of block chain technology for crypto currency – metal coin, coal, pickaxe
Credit: Grindi/Getty Images/iStockphoto.

Bitcoin and the many other coins that have been created using a similar structure have a huge appetite for energy, often compared with the annual consumption of a whole country. This high energy demand can translate into a huge carbon footprint. But the energy demand comes from the particular structure of these blockchain systems. It is possible to create cryptocurrencies or blockchain systems that have a much lower carbon footprint, and indeed examples of these already exist.

Security and Bad Actors
Bitcoin is an open system that anyone can join and that is designed to enable user anonymity. It is decentralized and distributed so there is no central body seeking to control or police activity. It was designed as a way to transfer value, so, by its nature, there is value in the system. This combination of factors means that the system needs to be protected from exploitation.

The central challenge is how to stop someone from spending a coin twice, so called "double-spending." A transfers Bitcoin to B but then transfers the same Bitcoin to pay C before the transfer to B has been confirmed. When the transfer to C is confirmed, the transfer to B is lost. Anonymity may well mean that B has no recourse against A. In the traditional monetary system, banks prevent digital double-spending through the process of clearing and confirming transactions. Bitcoin instead uses a system of investment and incentives to make it more worthwhile to adhere to the system than to try to steal from it by double-spending.

Proof of Work
The carbon footprint issue with Bitcoin is generated by the way that transactions are confirmed and new blocks created, namely "proof of work" or "mining." Proof of work involves solving a mathematical puzzle in order to create a block on the blockchain. The puzzle is not conceptually complex but is difficult in the same way that, say, finding the four numbers to open a combination lock is difficult (if you start at 0000 and work up to 9999, at some point the lock will open). Similarly, miners race to solve the mathematical puzzle and win a reward of brand new Bitcoin.

In contrast to the early days of Bitcoin, it is now only possible to mine Bitcoin successfully by deploying a significant amount of purpose-built hardware and processing power. The electricity needed to run the mining hardware for proof-of-work calculations is what generates the huge energy demand of Bitcoin. Most other major cryptocurrencies use a very similar mining/confirmation process and so generate similarly high energy consumption levels.

However, a blockchain system without a huge environmental effect, nevertheless, is entirely possible.

Using Renewable Energy
A high energy requirement does not inevitably mean a large carbon footprint. Renewable energy is developing at a significant rate in many parts of the world. Indeed, the major cloud service providers that operate vast data centers are some of the largest global purchasers of renewable energy. In some countries, the development of renewable energy infrastructure has been significantly boosted and enabled by the revenue streams created by long-term renewable energy supply contracts with major tech businesses.

However, the incentives and opportunities to switch to renewable energy differ around the world. Many commentators have noted that a significant proportion of Bitcoin mining takes place in China where, although the installed amount of renewables capacity is vast, the percentage of total energy generated from renewables remains relatively low.

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