Cryptocurrencies: what are the greenest blockchains

Bitcoin, the first cryptocurrency launched in 2009, has often had bad press. And especially because of the very large amount of energy required to validate transactions on its blockchain, the technology on which all operations are performed and secured. A study from the University of Cambridge points to the high electricity consumption induced by the Bitcoin blockchain, which it estimates at around 128 terawatt hours (TWh) per year. years per. June 10, 2022, slightly less than the amount of electricity needed to extract gold in the world and more than the annual consumption of a country like Poland.

Bitcoin also tends to increase its energy needs over time. Blockchain is actually based on a mechanism that is considered inviolable to validate transactions in cryptocurrencies, but also very greedy in the field of electricity. This is the process of working with proof of work: machines – especially Asics composed of electronic chips programmed to mine bitcoin – run at full speed to try to solve a very complex equation mathematics.

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The machine that finds the solution first obtains the right to secure the transaction, resulting in the creation of a new block on the blockchain and in return giving a reward in bitcoins. In this case, 6.25 bitcoins today, but this reward should decrease over time.

Screenshot of a graph from the University of Cambridge, on the monthly development of Bitcoin’s electricity consumption. University of Cambridge

In addition to Bitcoin, Ethereum, Litecoin and Monero blockchains in particular operate with a proof-of-work mechanism. However, many cryptocurrencies created in recent years are instead based on a blockchain with a proof of stake mechanism, especially due to the excessive electricity consumption required by mining and the “proof of work”. ”.

Evidence of effort is much less demanding than evidence of work

Proof of action is equivalent to putting your cryptocurrency tokens into play to achieve block validation. Token holders wishing to secure transactions are thus drawn by drawing lots. “This is called a probabilistic model, with a draw,” explains Anaïs Bouchet, who is responsible for evaluating the impact of projects at Cardashift, a company specializing in blockchain to fund environmental and community initiatives.

“Every validator on the network has a chance to validate a block, but that chance is weighted by the number of tokens held,” she continues. “Blockchains that work with proof of effort are clearly the ones that consume the least,” Anaïs Bouchet finally emphasizes. The best known of these are Polkadot, Cardano and Solana.

“A draw in terms of energy consumption is very low. The computing power needed is ridiculous, ”adds Hadrien Zerah, CEO of Nomadic Labs, responsible for the development of Tezo’s blockchain in France, which also works with evidence of effort. This protocol, originally designed by two Frenchmen, has an annual CO2 footprint equivalent to that of only 17 European households, according to a review by PwC published in December 2021.

It is therefore no coincidence that Ethereum wants to switch from proof of work to proof of effort. The blockchain will undergo a major update, dubbed “The Merge”, which should finally become a reality this summer. Evidence of effort “is more than 2,000 times more energy efficient,” said Ryan Shea, cryptoeconomist at fintech Trakx, quoted in the 21 Million newsletter. “This equates to a reduction in energy consumption of around 100 terawatt-hours (TWh) per year,” according to him, or the annual electricity consumption of more than 20 million French households.

Overlays that use less power

Sacrificing for its own success, with the boom in decentralized financing applications (DeFi), the Ethereum blockchain is becoming more and more saturated. Transaction processing times are getting longer on the network and the associated fees have been skyrocketed. Solutions have already begun to emerge to overcome this problem of “scalability”, i.e. large-scale use of technology.

Polygon blockchain, which is grafted onto Ethereum as a second layer, thus makes it possible to multiply transactions without creating congestion. Other protocols have been developed and can also be added to Ethereum to improve its “scalability”, such as Fantom or BNB Chain launched by Binance cryptocurrency trading platform. Bitcoin, which is also experiencing network delay issues, sees the Lightning Network protocol play this role.

In addition to improving “scalability”, these overlays have the advantage of reducing the power consumption required to validate transactions. Polygon, for example, “pre-validates transactions with a proof-of-stake mechanism and then compiles them into one that will eventually be validated by Ethereum’s consensus mechanism,” explains Anaïs Bouchet. Thus, “1,000 transactions can be performed on Polygon that require a single validation on Ethereum”.

To get an idea of ​​the level of energy consumption for each blockchain, “it is ideal to compare the amount of kilowatt hours required per transaction”, according to the engineer:

  • Bitcoin, and its proof-of-work mechanism, “consumes up to 700 kilowatt-hours (kWh) to pass a transaction, or the energy needed to travel 1,400 km with a diesel car consuming 5 liters / 100 km” , she specifies. . Ethereum, which today also uses proof of work, however, requires less energy: about 140 kWh per. transaction. In general, blockchains with this mode of operation use around 100 kWh to perform a transaction, that is, the energy needed to travel 200 km.
  • The overlays (layer 2, side chains) of the Ethereum blockchain, such as Polygon, require between 1 to 10 kWh per second. transaction, or the equivalent of 5 to 20 km with the same type of car.
  • Blockchains like Cardano or Solana, with a proof-of-stake mechanism, drop to just 1-10 watt-hours (Wh) per second. transaction, which is similar to searching the web with Google.

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Each blockchain has its advantages and disadvantages

In addition to energy consumption, each blockchain has its share of flaws and qualities. Evidence of effort, for example, tends to benefit holders of many cryptocurrency tokens who are more likely to be drawn. “It’s a small group of people who have a lot of tokens that control the creation of cryptocurrency,” points out Guillaume Berche, product owner of the Paymium cryptocurrency exchange platform. “It’s a copy of the current centralized financial system when Bitcoin involves a paradigm shift,” he believes.

Some therefore criticize evidence at stake to create a kind of oligarchy when the original philosophy of Bitcoin is based on the decentralization of exchanges and the way of governing.

“It’s the same with proof of work and mining,” replies Hadrien Zerah of Nomadic Labs. “The more devices and computing power you have to mine, the more blocks you produce, and the more you can afford to repurchase mine hardware.” Guillaume Berche acknowledges “a concentration effect”, but rejects any oligarchic function of Bitcoin “as for blockchains with a proof-of-stake mechanism”.

Polygon, an overlay of Ethereum, is also working on a consensus mechanism to validate transactions “rather centralized and less secure,” points out Anaïs Bouchet.

In general, blockchains are all trying to respond to the triptych “security, scalability and decentralization”. They are often less effective on one of these three dimensions to be better on another. For example, Solana blockchain, under evidence of effort, favors “scalability” rather, but it has experienced strong outcomes and seems more vulnerable than Bitcoin, which is less “scalable” on its part.

One of the major current challenges, therefore, is to reduce the cumbersome operation of the blockchain to allow its large-scale use and reduce its energy needs. All this with as little damage as possible to the security levels and decentralization of the network.

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It also depends on the energy used.

In addition to electricity consumption, the environmental impact of a blockchain, and in particular Bitcoin, can only be estimated by looking at the energy sources used. Bitcoin is famous for running many machines at full power to validate transactions. A draft European regulation even considered banning mining, the proof-of-work mechanism used by cryptocurrency.

But it is still difficult to know in detail the origin of the energy used by the miners. Many point to surplus electricity produced from renewable energy that would not be used for any other activity and would otherwise be lost. This is the case with the French mining companies Starmining and BigBlock Datacenter, which explain that they are taking advantage of the advantageous price of these profits.

But there is no independent study on the subject. And mining is still heavily dependent on fossil fuels, such as electricity produced by coal-fired power plants. According to the latest report from the Bitcoin Mining Council, which consists of mining companies, about 58.4% of miners worldwide use a renewable energy mix. A number on the rise, but which still shows the way for Bitcoin to be considered organic

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