How We Can Solve the Cryptocurrency Energy Usage Problem

December 10, 2019

Bitcoin is still the most important cryptocurrency people know about, and it serves as the entry point of the crypto space. However, every innovative project has to pay its price. For Bitcoin, it is its high carbon footprint created by mining.

Bitcoin mining works by solving cryptographic puzzles, also referred to Proof of Work (PoW). The miner that’s first to find the solution receives a Bitcoin reward. However, this race towards finding the solution comes with high energy usage, as it’s a resource-intensive process requiring a lot of electricity.

Currently, Bitcoin mining uses 58.93 TWh per year. An online tool by the University of Cambridge showed that Bitcoin uses as much energy as the whole of Switzerland. More important is the carbon footprint of Bitcoin. The electricity generated for powering the Bitcoin network equals 22 megatons of CO2 on a yearly basis. You can compare this carbon footprint with the footprint of a city like Kansas City (US).

This article will cover the following topics:

how the amount of energy consumed by each blockchain project differs depending on the implemented consensus algorithm
possible solutions for the high energy usage of Bitcoin
the effect of the Bitcoin network using a lot of excess and green energy.

To get started, let’s discuss if Bitcoin’s energy usage really is a problem?

Are We Thinking the Wrong Way about Bitcoin’s Energy Usage?

Let’s take a moment to think about where the energy for Bitcoin mining comes from. It’s worth questioning if the electricity the Bitcoin nodes use does harm the environment?

Many countries have an excess of electricity, especially when it comes to green energy solutions. The energy coming from green solutions like wind farms or solar plants is often hard to store or sell when the supply outweighs demand. This is true for many countries, especially China, which is responsible for 70 percent of the world’s Bitcoin mining.

As Bitcoin mining requires a lot of energy, node operators look for countries with cheap electricity prices. Reuters reported that “wasted [Chinese] wind power amounted to around 12 percent of total generation in 2017”. This means that node operators often end up in countries with an excess of energy. In those countries, Bitcoin mining plays an important role in neutralizing the energy market. Besides that, without Bitcoin mining, this excess of electricity is otherwise wasted.

Is it safe to say that Bitcoin does not contribute to environmental CO2 production? No, it does contribute for sure. However, the energy usage and CO2 pollution we think Bitcoin is responsible for is actually much lower.

Think about making a credit card payment. Every time you pull out your credit card to make a transaction, you also contribute to environmental pollution. You are not aware of the gigantic server plants of up to 100,000 square-feet to store and process all your transactions. Not to mention other things like their offices, payment terminals, or bank vaults.

It’s easy to attack Bitcoin for its energy usage. Therefore, it’s important to know that there is also an enormous hidden energy usage behind the VISA network. On the other side, the Bitcoin network only processes 100 million transactions per year, whereas the financial industry reaches up to 500 billion transactions per year.

Solutions for the High Energy Problem

We’re using too much energy for consensus algorithms like Proof of Work. This energy consumption is also responsible for quite some CO2 production. What can we do about it?

Solution 1: Use a different consensus algorithm

As many other consensus algorithms exist, let’s take a look at other more efficient ones. The Proof of Authority algorithm is a good alternative to Proof of Work. Proof of Authority leverages people’s identity. This means that every validating node needs to reveal its real identity in order to be able to verify new blocks in the network. Moreover, it’s a reputation-based consensus algorithm that doesn’t rely upon any kind of intensive mining. It’s one of the most efficient, low-energy consensus algorithms.

Besides Proof of Authority, Proof of Stake is a more well-known consensus algorithm. Proof of Stake leverages the power of coins in a blockchain ecosystem. By locking tokens, a user can verify blocks. The more tokens a user locks, the more chances they have to validate blocks. Again, it’s a low-energy consensus algorithm as little energy is wasted on validating blocks as no intensive mining process is involved. Any user who has staked tokens can be elected to validate a block.

Solution 2: Build more energy-efficient blockchains

There are several ways to reach the goal of creating more energy-efficient blockchains. In short, energy-efficient means that we can send and finalize more transactions with the same energy usage or less. Here’s a list of possible energy-efficient solutions:

Modify existing consensus algorithms to be less energy demanding or use energy-efficient algorithms like Proof of Authority or Proof of Stake.
Find new solutions like sharding to make blockchains more efficient and scalable.
Use more energy-efficient hardware for mining. Differences can be found between older and newer GPUs that are being used for mining.

Lastly, let’s take a look at sustainable mining solutions.

Solution 3: Find more sustainable mining solutions

There are several solutions when we look at sustainable mining solutions. For example, solar power can be harvested for Bitcoin mining in regions where there is an abundance of the sun, like Texas. Often, the grid can’t handle such a huge amount of solar energy, which often needs to be wasted.

Moreover, Iceland has been a favorable place for many Bitcoin miners. Iceland offers freezing temperatures that are ideal for cooling your mining rigs. Besides that, Iceland harvests geothermal and hydroelectric power. This makes energy consumption in Iceland cost-effective and more “green”. In short, Iceland offers ideal conditions for Bitcoin mining.

Lastly, a hot project called Hotmine appeared in Siberia that used Bitcoin mining rigs as a heating system for homes. Siberia is famous for its extreme sub-zero temperatures during the cold winter months. Hotmine’s CEO Oles Slobodenyuk wants to efficiently use the hot air Bitcoin mining rigs produce to heat homes. It’s a noble initiative that might find ground in the colder regions in Siberia.

Conclusion

There’s definitely room for improvement towards more “green” mining solutions. However, as green energy is often cheaper, more and more miners are looking for places like Iceland to install their Bitcoin mining rigs.

We cannot deny Bitcoin does use a lot of energy, as the basic concept of Bitcoin is based on storing energy as digital currency. This has earned Bitcoin a poor environmental reputation.

On the other hand, there are many solutions to this problem and many projects are being developed that use alternative consensus algorithms that are more efficient. Besides that, Bitcoin mining rig operators can find a lot of eco-friendly mining alternatives in order to reduce their carbon footprints.