Cryptocurrencies: what are the greenest blockchains?

Bitcoin, the first cryptocurrency launched in 2009, has often had bad press. And mainly because of the very large amount of energy required to validate transactions on its blockchain, the technology on which all operations are performed and secured. A study from the University of Cambridge points to the high electricity consumption caused by the Bitcoin blockchain, which is estimated to be about 128 terawatt hours (TWh) per year as of June 10, 2022, slightly less than the amount of electricity needed for gold mining. in the world and more than the annual consumption of a country like Poland.

Also, Bitcoin tends to increase its energy needs over time. The blockchain is in fact based on a mechanism that is considered inviolable to validate transactions in cryptocurrencies, but also very greedy in electricity. This is the proof of work mining process: machines – specifically Asics which are composed of electronic chips programmed to mine bitcoin – run at full speed to try to find a to solve a very complex mathematical equation.

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The machine that finds the solution is given the right to secure the transaction, resulting in the creation of a new block on the blockchain and a reward in bitcoins in return. In this case 6.25 bitcoins today, but this reward should decrease over time.

Screenshot of a graph from the University of Cambridge, showing the monthly evolution of Bitcoin’s electricity consumption. University of Cambridge

In addition to Bitcoin, the Ethereum, Litecoin and Monero blockchains in particular work 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, especially because of the excessive electricity consumption required for mining and the “proof of work”.

Proof of commitment much less time consuming than proof of work

Proof of stake comes down to wagering your cryptocurrency tokens to obtain the validation of a block. So, token holders who want to secure transactions are drawn. “This is called a probabilistic model, with a tie,” explains Anaïs Bouchet, who is responsible for evaluating the impact of projects at Cardashift, a company that specializes in blockchain to fund environmental and social initiatives.

“All validators on the network have a chance to validate a block, but that chance is weighted by the number of tokens being held,” she continues. “Blockchains that work with proof-of-stake are clearly the ones that consume the least”, Anaïs Bouchet finally emphasizes. The best known of these are Polkadot, Cardano and Solana.

“A draw is very low in terms of energy consumption. The computational power required is ridiculous,” added Hadrien Zerah, director of Nomadic Labs, responsible for developing 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 switch from proof of work to proof of stake. The blockchain will undergo a major update dubbed “The Merge”, which should finally come to fruition this summer. Evidence of stake “is more than 2,000 times more energy efficient,” said Ryan Shea, crypto economist at fintech Trakx, quoted in the 21 Million newsletter. “This corresponds to a reduction in energy consumption of about 100 terawatt hours (TWh) per year,” he said, 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 financial applications (DeFi), the Ethereum blockchain is becoming increasingly saturated. Transaction processing times are getting longer on the network and associated costs have skyrocketed. Solutions are already emerging to solve this problem of ‘scalability’, i.e. large-scale use of the technology.

The Polygon blockchain, grafted onto Ethereum as a second layer, thus makes it possible to multiply transactions without causing congestion. Other protocols have been developed and can also be added to Ethereum to improve “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 playing this role.

In addition to improving “scalability”, these overlays have the advantage of reducing the electricity consumption needed to validate transactions. Polygon, for example, “pre-validates the transactions with a proof-of-stake mechanism and then compiles them into one that will eventually be validated by Ethereum’s consensus mechanism,” explains Anaïs Bouchet. Thus, “1,000 trades can be executed on Polygon requiring a single validation on Ethereum”.

To get an idea of ​​the power consumption of each blockchain, “the ideal is to compare the amount of kilowatt-hours required per transaction,” according to the engineer:

  • Bitcoin, and its proof-of-work mechanism, “consumes up to 700 kilowatt-hours (kWh) to complete a transaction, or the energy it takes to travel 1,400 km with a diesel car running 5 litres/100 km.” consumed,” she specifies. † However, Ethereum, which now also uses proof of work, consumes less energy: about 140 kWh per transaction. In general, blockchains using this method consume about 100 kWh to carry out a transaction, i.e. the energy needed to travel 200 km.
  • The overlays (layers 2, side chains) of the Ethereum blockchain, such as Polygon, require between 1 to 10 kWh per transaction, or the equivalent of 5 to 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 searching the web with Google.

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Every blockchain has its pros and cons

In addition to energy consumption, each blockchain has its shortcomings and qualities. Proof of stake, for example, tends to be beneficial to holders of many cryptocurrency tokens, who have a higher chance of being drawn. “It is a small group of people with a lot of tokens that controls the creation of cryptocurrency,” emphasizes Guillaume Berche, product owner of the Paymium crypto exchange platform. “It is a replica of the current centralized financial system, where Bitcoin involves a paradigm shift,” he says.

Some therefore criticize proof of stake for creating a form of oligarchy, while Bitcoin’s original philosophy is based on the decentralization of exchanges and the way of governance.

“It’s the same with proof of work and mining,” replies 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 acknowledges “a concentration effect”, but rejects any oligarchic operation of Bitcoin “as for blockchains with a proof-of-stake mechanism”.

Polygon, an overlay of Ethereum, also works with a consensus mechanism to validate transactions “fairly centralized and less secure,” emphasizes Anaïs Bouchet.

In general, blockchains are all trying to respond to the “security, scalability and decentralization” triptych. They are often less efficient on one of these three dimensions to be better on another. For example, the Solana blockchain, under proof of stake, prefers “scalability” but has experienced major failures and appears more vulnerable than Bitcoin, which is less “scalable” on its side.

One of the major current challenges, then, is to reduce the cumbersome operation of the blockchain so that it can be widely used and energy demand reduced. All this with as little damage as possible to the security levels and decentralization of the network.

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It also depends on the energy used.

In addition to electricity consumption, the environmental impact of a blockchain, and in particular Bitcoin, can only be estimated by looking at the energy resources used. Bitcoin is known for running many machines at full capacity to validate transactions. A draft European regulation even considered banning mining, the proof-of-work mechanism used by cryptocurrency.

But it remains difficult to know in detail where the energy used by the miners comes from. Many point to excess electricity produced by renewable energy sources, which would not be used for any other activity and would otherwise be lost. This is the case with the French mining companies Starmining and BigBlock Datacenter, who explain that they take advantage of the advantageous price of these surpluses.

But there is no independent study on the subject. And mining activity 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, made up of mining companies, about 58.4% of miners worldwide use a mix of renewable energy. A Number on the Rise, But Still Showing the Way to Consider Bitcoin as Ecological

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