In late 2017 I wrote a detailed article on the excessive energy use of cryptocurrency mining. At that time, I was just trying to understand the process and the scope of cryptocurrency mining and the implications of its excessive energy use. The whole issue then was rather shocking to me in light of goals to reduce energy use and carbon emissions. Now, over 6 years later, I want to revisit the issue and see what has changed, both for better and for worse and see what can be done going forward to adequately address the issue.
Bitcoin energy consumption worldwide from February
2017 to December 5, 2023 (in terawatt hours)
Source: Statista.
The Change Since My Previous Article. Source: Bitcoin
Energy Consumption Index. (adapted).
The Energy
Information Administration recently reported that: “preliminary estimates
suggest that annual electricity use from cryptocurrency mining probably
represents from 0.6% to 2.3% of U.S. electricity consumption.” They also
note that monitoring the electricity use of the miners is not easy so that is
why the estimates vary within such a big range. They utilize top-down and bottom-up
approaches to determine energy use, but it is still difficult to know with certainty.
As energy use rises for different reasons, grid planners such as the North
American Electricity Reliability Corporation (NERC) have expressed concern about
excessive electricity use by crypto miners. They also note that even though cryptocurrency
mining began in the early-mid 2010s in the U.S. it took off heavily in China
around 2019 but then as China began to crack down on it in 2021, much of the mining
from China moved elsewhere, including to the U.S. I think that is what the
Statista graph shows with a big rise followed by the plateau, then a big drop on
the blue line. For the U.S. the bottom line is that the crackdown in China has
led to a digital currency mining boom in the U.S. As big energy users, crypto
miners can now participate in energy programs where they can be rewarded like
other industrial energy users for powering down their mining during high-demand
times. The EIA does hope to improve its estimates of U.S. crypto energy use
in the future.
The graphs above clearly show that since I wrote my article, the energy use situation has
not improved overall but has instead risen dramatically. When I wrote my
article in December 2017 the minimum estimated TWh of electricity used for
cryptocurrency mining was 15.5. In December 2023, that same number was 136.7
TWh, an 882% increase, or 8.82 times increase. Thus, what I was shocked about
in 2017 has increased by nearly nine times! In terms of actual estimated use
(the blue line on the graph) the increase during the same period was from 36.7
TWh to 137.7 TWh, or a 375% (3.75 times) increase. While that is a bit more
manageable to wrap one’s head around, it is still a fairly massive increase. Also,
according to the graph, the estimated use in late 2021/early 2022 was
shockingly, over 200 TWh. That is a humongous waste of energy, equivalent to
the annual energy use of multiple countries combined. Additionally, cryptocurrency mining also has a high water footprint.
When I wrote
the original article it seemed hopeful that Ethereum’s change, termed the merge,
from a proof-of work algorithm to a proof-of-stake algorithm was about to enter
the fray and offer a much less power-hungry verification schema for transactions.
Quite apparently, that effect has not yet materialized for crypto on the whole.
I wrote then:
“The culprit is a power-hungry kind of algorithm that
basically” crunches numbers.” Apparently, the current ‘consensus algorithm’ is
Proof-of-Work which is very power hungry. Alternative algorithms like
Proof-of-Stake consume negligible power in comparison but have yet to be
proven. Another possible algorithm that is much less energy intensive is called
Proof-of-Time-and-Storage. Utilizing this model has been called cryptocurrency
“farming” rather than mining. However, it has yet to be launched and those who
plan to launch it for their own cryptocurrency say there are still kinks to
work out. Also, it is unclear how much energy it will save over current mining.
Ethereum plans to offer a Proof-of-Stake model in 2018. The philosophy of
Proof-of-Work has been summarized as “security comes from burning energy” since
it is the most power-consumptive solution that leads to blockchain consensus.
The philosophy of Proof-of-Stake has been summarized as “security comes from
putting up economic value-at-loss.” Here any maliciousness is penalized so the
threat of penalty discourages it. So, P-O-W is motivated by reward while P-O-S
is motivated by punishment. In this case punishment is cheaper in energy
expenditure than reward. Ethereum founder John Lilic notes that “mass adoption
of Bitcoin across US households will result in very large increases of
electricity use relative to existing financial systems.”
Not Just Unnecessary Excessive Energy Use but Enabling
of Crime and Corruption
In my original
article, I also stated my distaste for cryptocurrency use, not only due to
excessive energy use, but also due to its inconvenience for consumers and especially
its preferred use by organized crime, criminal gangs, scammers, terrorist
financing, sanctions busting, and other forms of corruption. None of these
things offer any good to society. I would argue that these are very good
reasons to eliminate or severely restrict cryptocurrency use. I do concede that
there are some advantages of cryptocurrency use vs. traditional financing and
accounting but they are not nearly enough to overcome the very real and
damaging disadvantages. While many see cryptocurrency use as an evolved form of
financing in line with the times where digitalization is king, the disadvantages
are so intense as to render that view incorrect. Corruption is a huge problem
all over the world and giving the corruptors powerful tools to better corrupt
is obviously a support for them rather than a solution to any problems. The
simple lack of trackability is a means for criminals to easily avoid the
transparency and accountability that they seek to avoid. I also wrote about
other issues such as “cryptojacking” where criminal enterprises diverted
power to mine cryptocurrency and the less secure cryptocurrency trading
exchanges were being targeted by malicious hackers.
Blockchain
technology can give added layers of security in needed ways other than in cryptocurrency
mining. Thus, the use of power-hungry blockchain technology for these purposes
is not problematic in the criminal sense. The use of blockchain tech for
peer-to-peer power trading, smart grid tech, land registry and entitlement, and
other electronic transactions and Internet-of-Things functions is established
as beneficial for actually reducing hacking and corruption. Those transactions often
have faster transaction confirmation times than cryptocurrency mining and thus use
less energy. Participants are also known and tracked which takes out the
anonymity that favors criminality in cryptocurrency transactions, where there
is little to no record of who is doing what.
Proof-of Stake vs. Proof-of-Work, It’s Likely Effect on Crypto-Mining, Energy Use, and Participation
When I wrote my
original article it appeared that Ethereum was close to adopting their
proof-of-stake algorithm but in fact they did not adopt it for transactions
until September 2022, nearly 5 years later. They had stated previously that the
change would put crypto miners out of work and drop energy use by over 99%. While
that view is widespread, it seems that bigger players like Bitcoin are not
planning to change from proof-of-work to proof-of-stake anytime soon.
There are
several advantages of proof-of-stake, one of the biggest being energy use.
Another is obviously cost – less money to be paid to miners. There are some
transaction and security advantages as well, such as more decentralization. There
are also a few disadvantages. One is that participation by smaller players and
entities is suppressed. While proof-of-stake offers more opportunities for more
people to become validators, those validators will have to be people who own enough
coins. Thus, it is likely that validators overall will become concentrated into
fewer hands. There are also certain types of hacking attacks to which proof-of-stake
can be more vulnerable.
According to a
late-August 2023 article in Forbes there were then about 80 companies using
proof-of-stake. Ethereum, with the second-highest market share after Bitcoin,
is the biggest player and they are apparently still making the transition
(after a year) to proof-of-stake. The article notes: “Proof of stake is
becoming more prevalent as a consensus mechanism in the cryptocurrency world.
There are currently about 80 different cryptocurrencies that use PoS as the
consensus mechanism.” Even as that is the case, it is apparently a small
amount of the total since cryptocurrency energy use continued to rise during
the period from fall 2022 to fall 2023.
Ethereum gives
some data and comparisons of energy use on their site that show that their “merge”
from PoW to PoS, once completed, will drastically reduce energy use. There seems
to be little doubt that PoS will change crypto energy use for the better. The
sooner the better, anyone interested in pollution and the climate would be
expected to say. Ascertaining the actual effect on climate is complicated by the
fact that renewable energy as well as stranded energy resources are now employed
in many crypto-mining operations. Some miners also set up ops near
under-utilized power plants. This can help optimize the plants and improve
their economics. Those plants might like selling more power but the effect on
overall reliability is likely to be negative. The figures below show the
comparisons of Ethereum’s PoW and post-merge PoS energy use to other industries
and crypto ops.
Source of Figures: Ethereum.Org.
References:
Cryptocurrencies
and Excessive Energy Use? The Surprising and Unsustainable Environmental and
Climate Impacts of Bitcoin Mining: The Rise (and potential fall) of
Cryptocurrencies and the Potential of Blockchain Technology. Kent C. Stewart.
Blue Dragon Energy Blog. December 23, 2017. Blue Dragon Energy Blog: Cryptocurrencies and Excessive
Energy Use? The Surprising and Unsustainable Environmental and Climate Impacts
of Bitcoin Mining: The Rise (and potential fall) of Cryptocurrencies and the
Potential of Blockchain Technology
Over 2
percent of the US’s electricity generation now goes to bitcoin. John Timmer. Ars
technica. February 2, 2024. Over 2 percent of the US’s electricity generation now goes
to bitcoin | Ars Technica
Tracking
electricity consumption from U.S. cryptocurrency mining operations. Energy
Information Administration. February 1, 2024. Tracking electricity consumption from U.S. cryptocurrency
mining operations - U.S. Energy Information Administration (EIA)
Ethereum
will use less energy now that it’s proof-of-stake. Elizabeth Lopatto. The
Verge. September 15, 2022. Ethereum’s long-awaited switch to using less energy is here
- The Verge
Ethereum's
energy usage will soon decrease by ~99.95%. Carl Beekhuizen. Ethereum
Foundation Blog. May 18, 2021. Ethereum's energy usage will soon decrease by ~99.95% |
Ethereum Foundation Blog
Will
Proof of Stake Kill Mining? (PoS vs PoW). Luke B. Solberg Invest. October 1, 2021 (Updated 11. September 2022). Will Proof of Stake Kill Mining? (PoS vs PoW)
(solberginvest.com)
Proof
Of Stake Explained. E. Napoletano and Benjamin Curry. Forbes. August 25, 2023. What Is Proof of Stake? How Does It Work? – Forbes Advisor
Ethereum's
energy expenditure. Ethereum.org. October 24, 2023. Ethereum
Energy Consumption | ethereum.org
Bitcoin Energy Consumption Index. February 16, 2024. Bitcoin Energy Consumption Index - Digiconomist
No comments:
Post a Comment