Applications and Use Cases

Blockchain and Cryptocurrency at Center of Energy Consumption Debate

May 27, 2021

The environmental impact of blockchain and cryptocurrencies has sparked major debate recently. Proponents of the technologies argue that the energy consumption necessary to validate blockchain is often renewable and not nearly as much as that required to power the traditional, brick and mortar world of finance. Opponents argue that technologies that consume the same amount of energy in a year as an entire nation-state will only contribute to the global climate crisis.

The issue isn't nearly as cut and dry as some might think. At its center right now is Bitcoin, the most popular cryptocurrency. Bitcoin uses a proof-of-work (PoW) consensus mechanism to mine its blockchain, which requires a massive amount of computing power and therefore exorbitant amounts of electricity. It is estimated the technology uses 123.77 billion kWh of energy per year, while cash uses a mere 2.64 million kWh.

That number could be reduced significantly if miners use renewable energy. But there's no guarantee those mining cryptocurrencies will want to pay the typically higher costs associated with renewable energy to power their hardware.

Other cryptocurrencies take a different and less energy intensive approach to mining. Ethereum, the second largest global cryptocurrency, has been steadily moving away from PoW to the proof-of-stake (PoS) consensus mechanism. The process enables individuals to validate block transactions based on the number of coins they hold, and consumes considerably less energy than PoW.

Ethereum claims its Ethereum 2.0 initiative, slated to be rolled out in the next few months, will cut its energy consumption by 99.95 percent. Other companies like XRP also rely on low-carbon technologies instead of the costly PoW consensus. The XRP Ledger is carbon-neutral and uses the Federated Consensus mechanism for validation and security, a process that is around 120,000 times more energy efficient than PoW.

It is clear that future blockchain architectures will need to be both flexible and energy efficient to remain sustainable. P2P energy trading is one promising application to help reduce energy consumption, and blockchain technology enables execution, validation and recording of P2P energy transactions.

P2P energy trading could be used by smart cities of the future, creating a flexible web of microgrids to deliver electricity instead of centralized networks supplied by massive utility companies. Localized, autonomous networks would use local, green technologies to deliver electricity.

Blockchain-based, decentralized applications (DApps) could also be built to ensure the use of clean energy from sustainable sources. Consumers would then be able to check where their energy is being sourced before purchasing electricity.

Edited by Luke Bellos

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