Bitcoin Could Drastically Reduce Its Energy Consumption With This Fix
The bitcoin researcher behind a controversial study asserting that the cryptocurrency is killing the planet is back with a new paper. But this time, the researcher says he’s elaborating on his potential fix: By restructuring the way blockchain maintenance is incentivized, Alex de Vries says the network that runs bitcoin can drastically reduce its energy consumption.
In the new piece of commentary published Thursday in the journal Joule De Vries still criticized the world’s largest cryptocurrency for using up renewable energy resources for processing transactions, potentially consuming nearly 62.3 terawatt-hours over the course of 2018 — more energy than used by the entire country of Switzerland.
“Its energy consumption and electronic waste generation are certainly not negligible at the moment, and they will likely escalate quickly to even more extreme amounts if bitcoin manages to become widely used,” de Vries, a blockchain specialist for PricewaterhouseCoopers, said in a statement.
It’s important to note that De Vries is not an uncontroversial figure in the bitcoin community. His methodology has been questioned before — one HackerNoon story dismissed reports of bitcoin destroying the environment as “garbage” partially due to its economic assumptions — but his proposed alternative for incentivizing blockchain management could almost certainly reduce bitcoin’s energy consumption.
With bitcoin miners turning to large-scale renewables to power their operations, and even Ethereum slowly making moves toward a more efficient alternative, bitcoin could benefit from de Vries’ suggestion.
"“What I didn’t do in my previous paper was [make] a proper comparison to the full traditional system, explore what this means in carbon output,” de Vries tells Inverse.
The paper claims that as the bitcoin network processed 81.4 million transactions last year, it consumes roughly 491 to 765 kilowatt-hours per transaction. The global banking industry, estimated to use 650 terawatt-hours per year, processed 482.6 billion non-cash transactions per year, meaning it only uses 0.4 kilowatt-hours per transaction.
The problem stems from the underlying structure of bitcoin. It has no central servers and instead incentivizes people to pledge computer resources to help process transactions. Bitcoin “miners” set their machines to solve a computational problem to show “proof of work.” If their block is accepted on the decentralized “blockchain,” the miners get some bitcoin (currently 12.5 bitcoins) as a reward.
De Vries claims that this system creates a race, as the network adjusts the difficulty to ensure a new block is still generated around every 10 minutes but miners keep adding more computing power to the network to increase their share of the total power and reap more rewards. It also means a constant drain on renewable energy resources, like the hydroelectricity in Sichuan that’s home to 48 percent of bitcoin’s mining capacity. The seasonal variations in hydro need to be balanced out by alternative sources, creating a demand for dirty energy.
It gets worse. Assuming a best-case scenario that every miner is using the Antminer S9, which has the lowest weight per unit of computational power, the entire mining network weighs 16,442 tons. Following Koomey’s law that says energy efficiency doubles every 1.5 years, de Vries claims this results in electronic waste of 10,948 tons per year as old miners grow obsolete. This means bitcoin creates 134.5 grams of e-waste per transaction, compared to Visa that produces around 0.0045 grams.
Cryptocurrency fans may remember de Vries from a December 2017 analysis that went viral. As bitcoin was shooting in value to reach its record high of nearly $20,000, de Vries showed that its annual electricity consumption may outrank Serbia. The analysis, shared on Digiconomist and regularly updated, starts from the basis that nobody knows for sure which mining machines are active and how much energy they use. The index creates two estimates using different methods: looking at the total computational power on the network, and looking at the total mining reward available. De Vries derived the figure quoted in Thursday’s paper from the latter methodology.
“What I didn’t do in my previous paper was [make] a proper comparison to the full traditional system, explore what this means in carbon output,” de Vries tells Inverse.
However, Digiconomist’s methodology received strong criticism at the time. Jonathan Koomey, a Stanford University lecturer with experience in debunking energy consumption studies — and the creator of Koomey’s law — told CNBC that bitcoin is a “tiny, tiny part of all data center electricity use,” adding that using miner revenue to estimate energy consumption is “a completely unreliable way to do the analysis, and no credible energy analyst would ever do that.”
De Vries argues that his analysis looks at factors from a bottom-up approach to understand how many miners may go to waste, for example. He also argues that an economics-based model can still help predict future trends, and his previous analysis helped to show that energy consumption would continue to rise.
“I’d say economics have therefore confirmed their value in this context,” de Vries says. “The same economic model would now indicate that we shouldn’t expect much growth for the next year unless the price shoots up again.”
As for where bitcoin goes from here? One solution could be the Lightning Network that processes transactions away from the blockchain. De Vries argues for a move away from “proof of work” to “proof of stake,” which would involve miners instead proving that they hold a stake in the network, a system used by Dash and expected to be adopted by Ethereum. Its proponents argue that people that hold a stake in the network have an interest in maintaining its security, but others argue that centralizing control in the largest stakeholders could cause more issues.
“I think [proof-of-work] is somewhat overrated in terms of what it pretends to offer,” de Vries says, noting that proof-of-work-based Bitcoin Gold suffered a serious attack when a majority of the coin’s processing power holders committed fraud, something proof of stake would discourage.
Moving to a new method would require consensus from the bitcoin network. With the difficulties in convincing the network to adopt SegWit in August 2017, it could prove a major challenge.
Read the paper’s introduction below:
In this paper, we find that the Bitcoin network, with an electrical energy footprint of 491.4 to 765.4kWh per transaction on average, is relatively much more energy-hungry than the traditional financial system. Even though it has been argued that renewable energy may help mitigate the environmental impact of this, we find that there exist fundamental challenges in uniting variable renewable energy production with the consistent demand of Bitcoin mining machines. Moreover, we find that the environmental impact of Bitcoin mining reaches beyond its energy use. Continuous increasing energy (cost) efficiency of newer iterations of mining devices ensures that older ones will inevitably be disposed on a regular basis. The resulting electronic waste generation could equal that of a small country like Luxembourg, with a staggering average footprint of four light bulbs worth of electronic waste per processed Bitcoin transaction. Bitcoin will therefore have to address its sustainability problem in another way. This may consist of replacing its mining mechanism with a greener alternative like Proof-of-Stake.
The author of this story has a stake in bitcoin and Ethereum.