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Introduction
For those who are well versed in how damaging technology can be for the environment, blockchain is a dirty word. Environmentally conscious individuals rightly highlight that those cryptocurrencies which operate on Proof of Work protocols, such as Bitcoin and Ethereum, are incredibly damaging to the environment. As Bitcoin and Ethereum are the two largest cryptocurrencies at the time of writing, this makes the problem more severe because many transactions are completed utilising Proof of Work. However, there are other blockchains which rely on a different, far more sustainable technology – Proof of Stake. If managed well, those blockchains can potentially benefit the environment more than harm it. In this article, we will be exploring the differences in how these mechanisms work from a technological perspective, comparing the environmental impact of some of the assets on each blockchain and then considering how blockchain may be deployed to help, instead of harm, the environment.
One important consideration before we begin to assess the energy usage of any blockchain is to note the importance of the source of the energy used. Currently, much of the power generated globally is from the burning of fossil fuels, which are inherently harmful. The comparisons in this article are made with consideration of the fossil fuels being burned to reflect the current situation. It is however, possible to conceive a future in which energy is produced mostly from sustainable sources, which would reduce the environmental impact of blockchains generally.
What is Proof of Work and Proof of Stake?
Proof of Work is designed to stop participants in the blockchain from being able to “cheat” the system. Proof of Work achieves this by encouraging “miners” to solve a puzzle which, if they succeed, allows them to claim a reward in the form of the currency native to that blockchain (e.g. Ether on the Ethereum blockchain). Participating computers can guess the answer to the puzzle as many times as they wish until the next block is added to the blockchain. This means that the more computing power you have, the more opportunities you get to solve the puzzle and the more likely you are to receive the native currency reward (Castor, 2022). As a result, there has been a surge in “server farms” around the globe which are dedicated entirely to solving these puzzles. The creator of the longest chain – i.e. the one with the most Proof of Work – is selected automatically by the protocol as being the most valid and authentic and receives the reward. This creates heightened security for transactions because any single miner has a low probability of consistently winning the block reward to maintain the chain (Albertorio, 2020). Yet this does not make the system 100% fool proof, for example, in Bitcoin’s case, if one person controlled 51% of the “hashing”, they could then dictate what the truth is on the Blockchain and effectively control the system (Albertorio, 2020).
Proof of Stake is somewhat different. There are no miners in Proof of Stake, instead it makes use of “validators” who lock-up or “stake” the native tokens of the blockchain in a wallet (Castor, 2022). In exchange for staking the native tokens in wallets, users receive a percentage in “interest”, similar to how a savings account works at a centralised bank. In layman’s terms, the use of staked tokens to validate transactions means you don’t need to solve any of the complex puzzles used in Proof of Work protocols. The “interest” paid out to those who have “staked” their assets is paid automatically, by utilising a “Smart Contract”. The Smart Contract will dictate that a certain percentage will be paid for staking the asset. For those unfamiliar with Smart Contracts, in essence they set out the terms and obligations of counterparties, much like a typical legal contract. Unlike a legal contract however, Smart Contracts execute automatically without the requirement for a party to enforce its rights. Owing to the use of on-chain assets to validate transactions, Proof of Stake is much less energy intensive. This is because the computing power required to send tokens to the wallet for “staking” is negligible when compared with the power required to solve the complex Proof of Work puzzles.
What is the environmental impact of the Proof of Work and Proof of Stake protocols?
When we consider the environmental impact of Proof of Work, it can be difficult to contextualise the harm caused. Bitcoin, as the largest cryptocurrency in the world, has been studied from this perspective previously, with some very interesting comparisons drawn. In 2020 the University of Cambridge produced the Cambridge Bitcoin Electricity Consumption Index, which sought to better understand the energy output requirements of Bitcoin. The comparisons helpfully showed how Bitcoin compared with other “similar” assets in that year, for example both Bitcoin and gold are seen “as stores of value” and in 2020 Bitcoin required 133.00 TWh per year whereas gold required only 131 TWh per year (Cambridge, 2020). This may shock many readers who are aware that gold mining requires substantial industrial plants and machinery to extract gold from the earth and process it, confirming by contrast quite how exceptional the computing power required to mine Bitcoin is. The study also found that Bitcoin’s use of 133 TWh per year of electricity was more than the entire country of Norway, with 124.3 TWh per year, and slightly lower than Egypt’s 149.1 TWh per year (Cambridge, 2020). In terms of a comparison against other large enterprises, Bitcoin consumes more energy than Google, Apple, Facebook and Microsoft combined (Cho, 2021). Ethereum falls into a similar group. Ethereum is the largest marketplace for NFTs in the world, with around 80% of the market share at the start of 2022 (Canny, 2022). One study has shown that the energy consumption of an NFT on Ethereum is equivalent to a Tesla Model S 75 travelling about 450km (Stimilio, 2021), which is slightly more than the distance between Amsterdam and Paris as the crow flies. Clearly, these numbers are startling and make it abundantly clear why the European Union has recently considered limiting the use of Proof of Work protocols (Handagama, 2022). For investors seeking to include cryptoassets in their portfolio, it will be important to consider that the higher the price of Bitcoin and Ethereum rises, the more harm will be inflicted upon the planet – at least until such time as energy production is not reliant on fuel from burning fossil fuels. A responsible investor should therefore aim to balance this against environmentally beneficial investments.
Proof of Stake on the other hand is considered much less harmful from an environmental perspective. For the purposes of this comparison, we will be focusing on Bitcoin, Ethereum and Algorand. Whereas Bitcoin and Ethereum likely have an energy output of 1135 kWh and 840 kWh per transaction respectively at present (Ethereum, 2022), Algorand has a per transaction energy output of only 0.000008 kWh (Vasile, 2021). For context, if Ethereum were to have one million transactions in a day, this would have an output of 84,000,000 kWh, whereas an equivalent number of transactions on Algorand would only have an output of 8 kWh. To draw out this comparison further, you can see the energy output required to power certain machines in the context of the daily outputs of each of Ethereum and Algorand:
Table 1: All information on energy usage by household appliances taken from (EP, 2022).
Machine Being Powered and Power demand per kWh | How long machine could run if powered with the daily energy output from 1,000,000 Ethereum transactions? | How long the machine could run if powered with the daily energy output from 1,000,000 Algorand transactions? |
50’’ LED Television: around 0.016 kWh. | 5,250,000,000 hours of television watching. | 500 hours of television watching. |
Electric Dishwashers: around 2 kWh per load. | 42,000,000 loads for an electronic dishwasher. | 4 loads for an electronic dishwasher. |
Air Conditioner (3 ton 12 SEER): 3.0 kWh per hour. | 28,000,000 hours of air conditioning. | 2.66 hours of air conditioning. |
Refrigerator (24 cu. ft frost free Energy Star): 54 kWh per month. | 1,555,555.55 months of refrigeration. | 0.14 months of refrigeration, or between 3 and 5 days. |
We would often include such information in a graph so that we can visualise the differences, however here the gaps were so large that the graph became redundant. In addition to the clear differences between Proof of Work and Proof of Stake here, it is also important to note that Algorand further offsets its carbon footprint through the purchase of carbon credits (Algorand, 2021). The efficacy of carbon offsets will be explored in later articles.
Ethereum is seeking to upgrade its system and move to Proof of Stake for exactly this reason. Ethereum has been running a functional Proof of Stake chain called the “Beacon Chain” since December 2020 to test its Proof of Stake mechanism (Ethereum, 2022) and is planning to abandon the Proof of Work mechanisms in Q2 2022 and adopt a pure Proof of Stake model. If it does this, it is anticipated that its energy output would drop to 0.035 kWh per transaction, or 35,000 kWh per 1,000,000 transactions (Ethereum, 2022). If this were to come in and to be successful, you can see a comparison on Ethereum’s energy output compared to Algorand under a Proof of Stake protocol:
Table 2: All information on energy usage by household appliances taken from (EP, 2022).
Machine Being Powered and Power demand per kWh | How long machine could run if powered with the daily energy output from 1,000,000 Ethereum transactions? | How long the machine could run if powered with the daily energy output from 1,000,000 Algorand transactions? |
50’’ LED Television: around 0.016 kWh. | 2,187,500 hours of television watching. | 500 hours of television watching. |
Electric Dishwashers: around 2 kWh per load. | 17,500 loads for an electronic dishwasher. | 4 loads for an electronic dishwasher. |
Air Conditioner (3 ton 12 SEER): 3.0 kWh per hour. | 11,666.67 hours of air conditioning. | 2.66 hours of air conditioning. |
Refrigerator (24 cu. ft frost free Energy Star): 54 kWh per month. | 648.15 months of refrigeration. | 0.14 months of refrigeration, or between 3 and 5 days. |
Clearly, if Ethereum does succeed, this would vastly improve the environmental impact of Ethereum under Proof of Stake versus its position under Proof of Work. However, given the alternatives available, it is equally clear that it will not be as “green” as other blockchains already available today. Environmental performance aside, the merging of Ethereum from Proof of Work to Proof of Stake also carries substantial risks, particularly as a result of migrating the thousands of existing Smart Contracts which operate there, with billions of dollars in assets at stake (Castor, 2022).
What are some examples of Green Blockchain businesses?
Blockchains present exciting opportunities for companies seeking to promote environmentally positive outcomes from their work. Given the figures above which illustrate how effective Algorand has been in reducing the impact of blockchains on the planet, it is no surprise that many of these businesses are now being built on Algorand. A few examples of areas in which the Algorand blockchain can be used to achieve this are set out here:
· PlanetWatch – PlanetWatch joined the spin-off partnership program by CERN and seeks to improve global air quality monitoring in an attempt to solve the public health challenge caused by air pollution. It uses Algorand, because Algorand has the speed and scalability required to build such a database for air quality monitoring (PlanetWatch, 2022).
· SeedBomb – SeedBomb is a new Algorand Standard Asset which seeks to use the blockchain to build an open source educational resource covering sustainability topics. It achieves this by creating a repository of articles and minting them as NFTs on Algorand. This creates undisputed ownership of the article, as well as its copyright, enabling original authors to benefit from royalties on any resale through the use of Smart Contracts. SeedBomb also uses its own token on the Algorand blockchain as a voting device and means of making grants and donations, allowing community members to choose how funds are allocated to environmentally focused groups to help their efforts.
· Algoanna – uses art to help improve the world we live in. Algoanna has a series of art NFTs from which a certain percentage of any sale is put into a separate fund to fund the planting of trees. Algorand has provided a useful platform for this due to the low environmental impact in minting and selling NFTs (Algoanna, 2022).
· Algocean – an online fishing game in which players earn the Algocean token on Algorand for completing levels. Profits are then allocated to charities which seek to repair and improve our oceans globally (Algocean, 2022).
These are a few examples of business which are built on the Algorand blockchain. Each one is profit driven while also seeking to improve the world we live in, proving that these two goals need not be mutually exclusive. This is an encouraging step in the right direction for blockchain, showing how responsible engineering aligned with green thinking can help to promote and enable businesses that are passionate about the environment. It is also encouraging for businesses generally who can maintain their profit focus while achieving positive outcomes for more than just shareholders.
References
Albertorio, 2020, Available at: https://medium.com/coinmonks/simply-explained-why-is-proof-of-work-required-in-bitcoin-611b143fc3e0. Accessed on: 14/03/2022.
Algoanna, 2022, Available at: https://algoanna.com/. Accessed on: 14/03/2022.
Algocean, 2022, Available at: https://www.algocean.org/. Accessed on 14/03/2022.
Algorand, 2021, Available at: https://www.algorand.com/about/sustainability. Accessed on 14/03/2022.
Cambridge, 2020, Available at: https://ccaf.io/cbeci/index/comparisons. Accessed on 14/03/2022.
Canny, 2022, “JPMorgan Says Ethereum Is Losing NFT Market Share to Solana”. Available at: https://www.coindesk.com/business/2022/01/19/jpmorgan-says-ethereum-is-losing-nft-market-share-to-solana/. Accessed on 14/03/2022.
Castor, 2022, Available at: https://www.technologyreview.com/2022/03/04/1046636/ethereum-blockchain-proof-of-stake/. Accessed on 14/03/2022
Cho, 2022, “Bitcoin’s Impacts on Climate and the Environment”. Available at: https://news.climate.columbia.edu/2021/09/20/bitcoins-impacts-on-climate-and-the-environment/. Accessed on 14/03/2022.
EP, 2022, Available at: https://electricityplans.com/kwh-kilowatt-hour-can-power/. Accessed on: 14/03/2022.
Ethereum, 2022, Available at: https://ethereum.org/en/energy-consumption/. Accessed on: 14/03/2022.
Handagama, 2022, “Limiting Proof-of-Work Crypto Back on the Table as EU Parliament Prepares Virtual Currencies Vote” Available at: https://www.coindesk.com/policy/2022/03/12/limiting-proof-of-work-crypto-back-on-the-table-as-eu-parliament-prepares-virtual-currencies-vote/. Accessed on: 14/03/2022
PlanetWatch 2022, Available at: https://www.ecosia.org/search?q=Planetwatch. Accessed on: 14/03/2022.
SeedBomb, 2022, Available at: https://www.seed-bomb.com/. Accessed on 14/03/2022
Stimilio, 2021, “An NFT on Ethereum consumes as much energy as a Tesla”. Available at: https://en.cryptonomist.ch/2021/12/13/nft-on-ethereum-energy-tesla/. Accessed on 14/03/2022
Vasile, 2021, “Top 9 Eco-Friendly Cryptocurrencies To Invest In”, Available at: https://beincrypto.com/learn/eco-friendly-cryptocurrencies/. Accessed on 14/03/2022.
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