As most readers will by now be aware, blockchain is attracting increasing interest in the energy and other sectors with a growing number of projects getting underway across the world.
In essence a distributed ledger or database that records transactions, blockchains are envisaged as having numerous use cases from peer to peer and wholesale energy trading to smart meter registration and supplier switching, supporting the integration of renewables and renewable project crowdfunding in Africa.
Indeed, a 2016 survey of German industry executives identified more than 110 potential use cases for blockchain in the energy sector.
Nevertheless, there is one key challenge for blockchain and in particular the Ethereum platform, especially in a sector where energy efficiency and demand management is becoming the mantra: the high energy consumption.
Blockchain energy consumption
According to a new white paper from the World Economic Forum, the energy consumed in computational capability in the blockchain network is unsustainable.
Estimates of this energy consumption range from the power used by nearly 700 average American homes at the low end of the spectrum up to the energy consumed by the island of Cyprus at the high end, or more than 4.4bn kWh.
The authors go on to cite an early 2015 report in ‘The New Republic’ that the combined processing power of the bitcoin network was hundreds of times greater than the aggregate output of the world’s top 500 supercomputers.
“Processing and protecting the more than $3bn worth of bitcoins in circulation requires more than $100m in electricity each year, generating a volume of carbon emissions to match,” wrote the article’s author, Nathan Schneider.
The authors point out that there are two issues to the energy consumption: one is around the electricity used to run the machines and another is around the energy used to cool them so they don’t fail.
“Here’s a rule of thumb: for every dollar a computer burns up in electricity, it needs 50 cents to cool down.
“The acute drought in California has raised serious concerns over using precious water to cool data centres and bitcoin mining operations,” they write.
Blockchain carbon footprint - proof of work
The high energy consumption results from the ‘proof of work’ concept, i.e. which requires some work to be completed, in order to validate the transactions on the blockchain.
While vital for securing the system, and for having built public trust in blockchain, it requires the heavy computations, or ‘mining’ – via a hashing algorithm – to achieve.
As the value of bitcoin increases, the competition for mining new bitcoin increases, the white paper states. As more computing power is directed at mining, the computational problem that miners need to solve becomes more difficult.
An indicator of this is the hash rate, which has been increasing considerably, rising from around 1.5 exahashes per second in mid-2016 to over 5.5 exahashes per second in June of this year.
And the trend is towards using more energy, not less, the white paper continues. It goes on to quote former bitcoin core developer Gavin Andresen in a 2015 interview: “If bitcoin really does become a global team network, I think we will need to slowly move away from proof of work as the only way it’s secure.
“In the very long run, maybe we will move away from proof of work as the way the network is secured, and we’ll combine it with something else.”
Reducing the blockchain carbon footprint
One approach that is being pursued – with probably only limited potential – is focussed on the computer architecture.
The white paper cites the example of the Bitfury Group, which has built “a massively parallel bitcoin problem-solver with application-specific integrated circuits that are energy efficient and designed solely to mine bitcoins.”
The founder and CEO, Valery Vavilov, is said to believe that machines and mining operations overall will continue to become more energy efficient and environmentally friendly.
Some of that depends on relocating to cold climates where energy is cheap and preferably renewable, such as hydro or geothermal, and where either Mother Nature handles the cooling or manufacturers figure out an efficient way to capture the heat.
In Bitfury's case, it has two data centres, one in Iceland and another in the country of Georgia, with plans for additional centres in North America, and the company has acquired the Hong Kong-based start-up Allied Control, which specialises in immersion cooling technology.
The second, as alluded to by Andresen in the interview and likely with more long term energy reduction potential, is in the blockchain technology and a switch from proof of work to proof of stake or another architecture that does not require mining. In effect, this would move ‘miners’ to become ‘validators’.
The first version of the Ethereum blockchain – the most popular to date in the energy sector – uses proof of work.
However, this is expected to be replaced with a proof of stake mechanism, although the fact that it has been pushed back on several occasions has raised questions around its full implementation, according to the white paper, highlighting the switch as another governance challenge.
Notably the energy considerations of proof of work were behind Australian startup Power Ledger’s decision to implement a proof of stake approach in its Ecochain platform.
Among the recommendations the white paper suggests forming a multistakeholder network to look at energy issues, under the joint auspices of the World Economic Forum Climate Project and Energy Initiative.
The goal would be to explore methods for capturing the heat produced by mining, harnessing the unused computing power of appliances and reducing energy consumption across whole systems.