The mainstream media detractors of blockchains and cryptocurrency articulate multiple criticisms of the technology, but the one with perhaps the greatest legitimate grounds is the environmental impact created by the original incarnations of Bitcoin and Ethereum.
In the original Bitcoin white paper, Satoshi Nakamura outlined the Proof of Work (PoW) algorithm. PoW is the core innovation within the Bitcoin blockchain that creates the immutable record of cryptocurrency transactions and supports “trustless” transactions between two parties without the need for third-party involvement.
In PoW, nodes on the blockchain compete to solve a complex mathematical hashing challenge. The first node to solve the challenge uses that hash as proof that it performed the work necessary to justify the reward of new Bitcoin and/or transaction fees. Every computer on the network competes to solve the problem, but only one ultimately succeeds—the rest of the CPU consumed is effectively wasted. The amount of CPU expended in PoW varies depending on the number and power of the nodes on the network. In Bitcoin, the amount of energy consumed is currently estimated by the University of Cambridge at 127 terawatt hours. This is roughly equivalent to the power consumption of a small country such as Sweden or Malaysia.
The actual carbon footprint of Bitcoin is not necessarily directly proportional to the absolute energy consumption, since the economics of Bitcoin favor cheaper renewable energy sources. And Bitcoin advocates will be quick to point out that the impact of Bitcoin is smaller than that of possibly comparable industries such as gold mining. Nevertheless, for many of us, the environmental impact of Bitcoin simply seems too high.
Ethereum—the second most popular blockchain and cryptocurrency—initially used PoW and had a similarly unpopular environmental impact. However, Ethereum transitioned to an alternative consensus mechanism—Proof of Stake—in 2022.
Proof of Stake avoids the environmental cost and theoretically allows for a faster system. Instead of requiring each validator to prove that it has expended computing power, each validator is required to prove an economic “stake” in the network. Validators take turns in voting on the next block in the chain, and the size of the vote is proportional to the amount of cryptocurrency (in this case, Ether) that they have deposited (e.g., “staked”).
The shift to Proof of Stake reduced Ethereum’s energy consumption by 99.99%. Ethereum now has a carbon footprint of about 1% of PayPal’s and is hardly a bad actor on an environmental basis.
Other blockchains go even further to reduce carbon emissions. The Hedera Hashgraph ledger has a permissioned architecture that offers a far smaller energy footprint than public chains. In addition, the Hedera council purchases carbon offsets in excess of its carbon footprint, resulting in Hedera being carbon-negative overall.
As attractive as these solutions are, some would claim that only PoW offers the guarantees that make blockchains truly unique. Proof of Useful Work (PoUW) is a variation on PoW which, although still energy-intensive, is not as wasteful as PoW. In PoUW, nodes solve computation problems that have beneficial outcomes. For instance, a PoUW challenge might involve protein folding problems relevant to cancer and Alzheimer’s research. In the future, PoUW challenges might involve detecting deep fakes or training better AI models. PoUW is core to the Internet Computer project, which, while arguably at an early stage, demonstrates significant technical promise.
It’s still true that Bitcoin has a high carbon footprint. However, most other blockchains that might be used for Web3 development are either using Proof of Stake or other similar protocols. The perception that blockchains in general are environmentally unacceptable is, therefore, mostly obsolete.