While the 2021 United Nations Climate Change Conference COP26 takes place in Glasgow this week, attention turns to the energy waste of cryptocurrency transactions.
A substantial part of the cost resides with the “proof of work” (PoW) process by which validating nodes on a blockchain compete to solve a numerical puzzle the solution to which is then circulated to all other verifying nodes and bedded into the latest block of transactions. The winner is also rewarded with some cryptocurrency.
It is a competitive process with potentially high financial rewards, producing an incentive structure that has
“triggered a computational arms race among PoW validators. That arms race manifests in PoW blockchains expending an exorbitant level of energy” (1162)
according to a review article by Fahad Saleh.
It’s worth referring to alternative blockchain models. The incentives are high for researchers and developers to devise methods that obviate the exorbitant energy, CPU and electricity costs of validating blocks of transactions, especially in light of the climate emergency and attempts to meet carbon reduction targets.
Proof of stake
One solution that’s offered to the arms race is to develop methods that assign the validation procedure randomly to computers on the blockchain network. The randomness is weighted towards those that are already most heavily invested in the cryptocurrency of that blockchain. This validation process is known as “proof of stake” (PoS).
On the face of it, that randomly selected validating computer has no incentive to reject illegal or badly-formed blocks of transactions — that it is assigned to validate. The method also implies that control of the blockchain will reside with the richest participants, those with the highest stake. Sahled’s article shows how neither factor diminishes the functioning of the blockchain, nor does it cause a “rich-get-richer” effect.
The developers of the Ethereum blockchain that supports Ether cryptocurrency have asserted that Etherium will switch to a PoS validation method this year (2021), though there are risks in adjusting a system that already lists transactions worth millions of dollars.
I’ve compiled a short bibliography below that canvasses some of the challenges pertaining to the environmental costs of blockchains. This post is also inspired by a series of spirited discussions in my Media and Culture class this week. See other posts that refer to blockchains.
- Bezek, Ian. 2021. What Is Proof-of-Stake, and Why Is Ethereum Adopting It? As environmental concerns mount, Ethereum is switching to a more energy-efficient protocol. USNews, 14 July. Available online: https://money.usnews.com/investing/cryptocurrency/articles/what-is-proof-of-stake-and-why-is-ethereum-adopting-it (accessed 6 November 2021).
- Chohan, Usman W. 2021. Non-Fungible Tokens: Blockchains, Scarcity, and Value. SSRN: Critical Blockchain Research Initiative (CBRI) Working Papers, 24 March. Available online: https://ssrn.com/abstract=3822743 (accessed 29 October 2021).
- de Vries, Alex. 2018. Bitcoin’s Growing Energy Problem. Joule, (2)801-809.
- gcharang. 2021. Proof of Work: An Overview of PoW Blockchains. Komodo, 11 October. Available online: https://komodoplatform.com/en/academy/proof-of-work/ (accessed 6 November 2021).
- Kiayias, Aggelos, A. Russell, B. David, and R. Oliynykov. 2017. Ouroboros: A provably secure proof-of-stake blockchain protocol. Annual International Cryptology Conference: 357–388. Amsterdam, the Netherlands: Springer.
- Saleh, Fahad. 2021. Blockchain without Waste: Proof-of-Stake. The Review of Financial Studies, (34)1156-1190.
- Oliva, Gustavo A., Ahmed E. Hassan, and Zhen Ming (Jack) Jiang. 2020. An exploratory study of smart contracts in the Ethereum blockchain platform. Empirical Software Engineering, (25)1864–1904 (https://doi.org/1810.1007/s10664-10019-09796-10665).
- Tasha. 2021. Green NFTs. Crypto Chronicles, 30 October. Available online: https://www.youtube.com/watch?v=EB-36ZuLeGI (accessed 5 November 2021).
- Xavier. 2018. Proof-of-stake (versus proof-of-work). Simply Explained, 21 March. Available online: https://www.youtube.com/watch?v=M3EFi_POhps (accessed 5 November 2021).