Newer blockchains overcome energy consumption limitations of earlier models
As a front-runner on the list of key technological disruptions of the 21st century, blockchain is reshaping many entrenched businesses and industries by promoting decentralization and introducing disintermediate applications. Over time, blockchains have evolved tremendously, addressing many of the drawbacks and overcoming the limitations of previous models, especially in terms of energy consumption.
While cryptocurrency has an environmental impact, not every cryptocurrency or underlying blockchain has the same carbon footprint. As new advances are made across the blockchain ecosystem, several promising solutions to tackle environmental issues raised by critics have emerged, each with varying degrees of success.
Between purchasing carbon offsets, experimenting with new energy-efficient consensus mechanisms, and forming non-profit organizations, among others – the blockchain and crypto community is leaving no stone unturned to achieve the goal of eliminating carbon emissions from the crypto industry by 2030.
The work done so far is yielding promising results. A recent report compiled by crypto research firm Messari highlights this progress, “Through drastic programming overhauls and funding of carbon offset projects, protocols are actively breaking down the stigma that crypto is harming the planet.”
Proof-of-Stake is more efficient than Proof-of-Work
Compared to older chains such as Bitcoin (BTC-USD) and Ethereum (ETH-USD) which use the proof-of-work (PoW) consensus mechanism, second and third generation blockchains such as Solana, Cardano, Avalanche, Tezos and Algorand which use the proof-of-stake (PoS) consensus mechanism are very energy efficient.
As of July 27, 2022, the Bitcoin network’s annual energy consumption is only 90,000 gigawatt hours (GWh). Ethereum, which currently uses the PoW mechanism and will soon switch to the PoS mechanism, used around 17,000 GWh.
In contrast, PoS chains such as Polkadot and Tezos’ annual energy consumption is only 0.1 GWh, outperforming almost all large peers by a wide margin, while underscoring their significantly lower carbon footprint compared to the Bitcoin network. Meanwhile, the energy consumption of Cardano and Algorand is 0.6 GWh and 0.5 GWh respectively. Despite being the outlier in the PoS group, Solana shows an annual energy consumption of 1.9 GWh, which is still more efficient than Bitcoin and Ethereum.
Tezos and Polkadot are the frontrunners in the energy efficiency race due to the underlying proof-of-stake (PoS) consensus mechanism. Unlike the proof-of-work (PoW) chains, Polkadot, Tezos and the rest of the PoS chains do not rely on the computational power to secure their networks and validate transactions. Instead, these highly efficient PoS chains implement other direct financial incentives to encourage network stakeholders to participate in the transaction and block the validation process, significantly reducing energy consumption.
How do Proof-of-Work chains validate transactions?
Proof-of-work (PoW) chains such as Bitcoin and Ethereum encourage network participants to provide the computational power required to operate a network and maintain its security. As the network expands, the need for computing power continues to increase. To provide the necessary power, the network participants (miners) required to validate transactions and mine new coins must invest in advanced devices (mining rigs), which consume enormous amounts of electricity.
This reward model increases competition among network participants because those with the highest computational power are usually chosen to validate the block (process the transaction) and add it to the network, earning block rewards in the process.
How do Proof-of-Stake chains validate transactions?
In contrast, PoS removes all forms of competition. Instead of each network participant competing to provide the highest computational power, the selection is made based on the participant’s stake in the network. So participants who own a certain number of the platform’s initial tokens are randomly picked to participate in validation and blocking.
The entire process of validating transactions and adding them to the blockchain does not require any advanced device to work. As a result, PoS-based chains such as Polkadot, Tezos, Algorand, Avalanche, and Cardano can easily maintain zero e-Waste, produce minimal greenhouse gas emissions, and display a noticeably lower carbon footprint than PoW counterparts.
Moreover, energy efficiency is only one of the many advantages of the PoS consensus mechanism. PoS-based chains offer better scalability, throughput and cost efficiency than PoW-based chains. Ethereum is also on the verge of moving to the PoS mechanism, thus making a strong case for the energy-efficient consensus mechanism. A recent report by the Ethereum Foundation acknowledged that Ethereum’s transition to the PoS model would lower the network’s energy consumption by 99.95%
On top of this, the PoS-based chains are continuously unlocking new features and functions to meet the ongoing challenges that shadow blockchain technology, also known as the “blockchain trilemma”, to maintain the right balance between scalability, security and decentralization.
Takeaway: The blockchain industry is becoming more energy efficient
While it cannot be denied that PoW chains are energy intensive, it is also important to consider that PoW was the first working iteration of decentralized blockchain technology. Over the years, the blockchain industry has made huge strides towards energy efficiency, and the latest data from Messari underscores this progress.
As blockchain technology continues to evolve, more innovations are likely to enter the crypto ecosystem, each contributing to the common goal of a greener planet without compromising technological excellence.
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