Blockchain and Consensus: Will Cybercurrencies Drain the World’s Power Supplies?

Blockchain provides a decentralized way for tracking information. Blockchains eliminate the need for a central authority to control the accuracy of the information. The key to the trustworthiness of the blockchain is the consensus algorithm it uses to guarantee correctness.

The purpose of consensus algorithms is to provide evidence that every piece of information entered and stored on the blockchain is accurate. Today there are many available blockchains and almost all of them rely on one of two kinds of consensus algorithms: “Proof of Work” (PoW) or “Proof of Stake” (PoS).

Bitcoin is the original blockchain implementation and is based on the PoW consensus algorithm. The PoW algorithm introduces the idea of miners who keep updated copies of the blockchain and verify that the blockchain is accurate. The verification process requires the miner to solve a mathematical puzzle based on the state of the blockchain. The solution to the puzzle assures the accuracy and agreement among the miners. The incentive to the miner is bitcoin payment to the miner’s account. Most of the largest blockchains currently use PoW consensus.

The problem with PoW consensus is that it requires massive amounts of computations to keep running. Current estimates of the power consumption needed to keep Bitcoin and Ethereum running are comparable to the energy consumption of medium-sized countries like Ukraine or Argentina.

In May, Elon Musk, billionaire and crypto aficionado, said that he is “concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.” Long term, many feel that cryptocurrencies based on PoW are not sustainable.

The alternative to PoW is Proof of Stake. Ethereum has announced plans to try to move the currency over to PoS from PoW, but estimate that it will take until at least 2022 before that could happen. PoS consensus is derived at by signing on validators stake ownership to some amount of coins and use that as a kind of collateral. A validator found to be dishonest risks losing their stake and future access to participate in the chain.

Jessi Baker, wrote in Forbes that “today, blockchain’s carbon cost limits its overall value add – at Provenance, for example, we’ve adopted an approach which transacts with the blockchain sparingly, prioritising key points of impact verification only. However, if Proof of Stake proves as robust as Proof of Work, it would unlock a climate-friendly tool to incentivize sustainable practice and increase trust at scale. The potential is huge, not least when it comes to transforming global supply chains for the better.