Grzegorz Bytniewski

Energy efficiency of blockchain technologies

Blog Post created by Grzegorz Bytniewski Partner on 20-Nov-2017


 

With a current rise in the popularity (and price) of cryptocurrencies, significantly grows also the energy needs to sustain this new game-changing technology. At the time of writing it is estimated (source) that both of the leading public blockchains Bitcoin and Ethereum are using an amount of energy equivalent to the consumption of a big country like Hungary.

 

 

This is a massive problem which popped out often during recent blockchain conversations, ultimately questioning the usefulness of the technology. The problem of blockchain energy inefficiency lays at the core of the blockchain technology - consensus algorithm. It defines how the transactions are validated and finally packed into blocks.

Both Bitcoin and Ethereum are using so-called Proof-of-Work (PoW) consensus algorithm. This process involves solving a very computationally expensive riddle that attracts everyone (miners) to race for the price (a few bitcoins or ethers) which is automatically issued to "lucky" one that solves the riddle. This was the initial idea of securing the blockchain network provided by Satoshi Nakamoto, mysterious inventor of Bitcoin (and blockchain technology).

 

However today's blockchain technology  Proof-of-Work, there are many other consensus protocols that are widely used, mainly for permissioned (private) blockchains. This type of blockchains are often implemented across industries or governments and are usually not subject to energy inefficiency of public ones, due to different underlying consensus protocols.

For public blockchain's PoW still remains the most widely used solution, mainly due to its inherent security, however, the status quo in this field is about to change... sooner than expected.   


Ethereum is finishing their implementation of Proof-of-Stake consensus algorithm (called Casper) where the validators will be randomly assigned based on their deposit (stake). In order to secure the network, there will no longer be a need for massive amounts of computational power and at the same time massive amounts of energy. Normal laptop with some cryptocurrency deposited in a smart contract will be equivalent to today's giant mining farm, effectively making current energy issue non-existent. Public Ethereum blockchain will gradually move towards such new way of securing the network perhaps as early as later this year (source).

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