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How energy efficient is your blockchain?

James Huang | 2022.04.08

Sustainability is on everyone’s minds these days. Take electric vehicles – nearly every auto manufacturer is producing one; many governments subsidize them; and the infrastructure for them is growing quickly.

How do different blockchains compare? With headlines focusing on the sustainability problem of Bitcoin, you may be wondering what other options are out there, and whether they are really any better. The main contributing factor to energy consumption is the consensus process. But this can look very different depending on which blockchain you’re measuring. We decided to do some quick math to see if we could come up with a like-for-like ranking.

Bitcoin’s consensus problem

Both Bitcoin and large heavy cars have a reputation for being terrible for the environment. Every journey and transaction requires large amounts of energy. For that gas guzzler speeding down the highway, the engine is the problem; it uses fossil fuels which are non-renewable and pollute the environment.

For blockchain, the problematic feature is the consensus mechanism. Consensus is how a blockchain validates a transaction. While different blockchains use different consensus mechanisms, Bitcoin’s popularity and reach makes its mechanism – called Proof of Work (PoW) – the Hummer of blockchains.

In PoW, users compete to mine blocks of transactions. Mining is a competitive part of the validation process used to ensure that the input of a transaction is the same as its output. The process of finding an integer that results in the hash value of the block being under the current target difficulty requires many attempts, by many competing miners, which translates to a lot of computing power. Additionally, the market capitalization of a cryptocurrency strongly correlates with its energy demand, making any proof-of-work based cryptocurrency anti-efficient from an energy consumption perspective. This is particularly evident in popular cryptocurrencies like Bitcoin.

But wait! Every blockchain works a little differently

But not every blockchain is a Hummer. PoW is only one of several common consensus mechanisms. Others are Proof of Stake (PoS) and the low-energy alternatives of private blockchains.

In comparison to the energy-intensive mining free-for-all of PoW, PoS gives those with larger cryptocurrency holdings more power in transaction validation. Depending on the design of the PoS protocol, a validator may stake cryptocurrency in order to qualify as a validator. Should they abuse this position of power by acting dishonestly, the staked amounts may be “slashed”. This motivates good behavior, which obviates the need for computing puzzles in consensus, meaning that less energy is consumed than in PoW models.

A broad approximation of the energy needed to achieve transaction finality can be made by taking into account the energy demand of servers responsible for transaction finalisation.

For our purposes here – as a back of the envelope effort to compare magnitudes only – a single number “snapshot in time” approach was used. But as any holder of cryptocurrency knows, the number of validators and throughput changes frequently for public blockchains. Conceivably, the number of validators may even be correlated with the number of transactions on a blockchain. We believe that the table functions as a reasonable estimate of comparable magnitudes.

The calculation

There are differences in the calculations used for PoW and PoS. The reason is that the protocols, number of validator nodes, recommended hardware, and need for throughput vary.

A very rough model we used to calculate energy use was this one:

Energy per transaction = (power per server x number of servers) / transactions per second

We adopted this admittedly highly simplified model from a peer-reviewed paper on the industry’s efforts to make blockchain greener. It assumes that a server consumes a certain amount of energy, that there are a known number of servers needed to operate a blockchain network, and that blockchain networks have a known volume of throughput.

For the public blockchains, their energy consumption figures were converted to watts per second, and then divisible by transactions per second (see figures for Bitcoin  Ethereum). This yielded numbers that are comparable to others published about these blockchains.

Power per server – The savvy reader will know that server consumption is a tricky variable. A recent paper on blockchain consensus mechanisms estimates that it can take a range of value from 5.5 to 328 watts depending on hardware type.

For Bitcoin and Ethereum, the Cambridge Bitcoin Electricity Consumption Index calculates a detailed number that takes into account the type of mining equipment.

Number of servers – Again, for public blockchains this can be estimated directly as the hash rate is known.

An important caveat is that all blockchains use multiple phases for a transaction to validate and finalize.

Transactions per second – there are considerable differences in transactions per second (TPS) between different blockchains. TPS is defined by the way transaction finality occurs in each blockchain.

Sustainability use cases are on the rise

Increasingly, the blockchain community is seeking ways to improve global sustainability. The technology facilitates use cases that prioritise climate resilience, including supply chain and energy provenance and green finance. And it consolidates processes of legacy systems, making them much more energy efficient. By storing information on a blockchain, it becomes immutable and viable, which ensures that parties are held accountable for their green pledges.

Private blockchains are the most energy efficient choice that you can make today. This has led the way in promoting change throughout the community, as, just as you can’t really justify driving a Hummer anymore, it is no longer possible to argue that high energy consumption is the only way to run a blockchain.

How energy efficient is your blockchain?
MERCURY TECHNOLOGY SOLUTION, James Huang 8 April, 2022
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