Sustainable Blockchain – Is it possible?
Recently, one of the world’s largest cryptocurrencies went through a significant change. This transformation – known as the Merge – will potentially change its technology to cut carbon emissions by more than 99.9 percent. This is the claim made by Ethereum founder Vitalik Buterin.
This means that this blockchain technology will now no longer be the intensive energy consuming model that it – and its rival Bitcoin – have conventionally been. This is good news – if it really does work.
Cryptocurrency is the latest buzzword that many of us know without understanding what it really is. Indeed, it is not easy to understand completely. But we can try to grasp the underlying concept. It is necessary to do so because this technology will continue to grow.
What is cryptocurrency?
Cryptocurrency or crypto is a digital currency that has been designed to work as a medium of exchange or “currency” through a computer network. The main advantage of this medium of exchange is that it does not rely on any central authority like the government, banks, or other financial organisations, for its maintenance.
It is essentially a highly decentralized system that does not need traditional intermediaries to verify that parties undertaking a transaction have the money they claim to have. So, when funds are transferred between entities, there are safeguards within the system to ensure that transactions are what they claim to be.
Individuals own coins and the records of this ownership are stored in a digital ledger. This ledger is essentially a computerized database in which not only transaction records are secured, using very strong cryptography (a method of protecting information and communications by using codes), but the transfer of coin ownership is verified.
This idea was first conceived in 1983 by US cryptographer David Chaum. He thought of a type of cryptographic electronic money that he called ecash. He implemented this through Digicash in 1995. Digicash was a system of an early form of cryptographic electronic payments that needed user software to withdraw notes from a bank and to designate specific encrypted keys before sending to recipients. This method allowed for the digital currency to be untraceable by a third party.
What is a blockchain?
The next term to understand is the blockchain. This the above mentioned decentralized digital ledger, where records of coin ownership are stored. The blockchain, consists of a growing list of records or “blocks” that are securely linked together, using cryptography. As its name implies, it is a chain of these blocks.
So, to repeat, it is basically a computerized process of replicated, shared, and synchronized digital data, spread over many sites, countries and even institutions that does not require a central administrator. The system is intended to be transparent (because it is publicly available), secure (because of the cryptography), and egalitarian (because it does not depend on a bank or any other central administration system). The blockchain system is the basis for digital currencies.
Blockchain technology was developed in the 1990s as a means to ensure that any changes to documents were secure and time stamped.
How the blockchain is different from other databases and document systems is that each block has a unique identifier known as a hash, based on the contents of the document. This randomly generates a code called a nonce (an arbitrary number that can be used just once in cryptographic communication). If a block is changed, a new hash is created relating to the new block. This new block references the hash of the previous block (on which it was based). A series of such blocks makes a blockchain. The reason the blockchain is considered secure and tamper-proof is because each new block records the hash from the previous block. If the previous block is edited its hash would be changed and subsequent blocks down the chain would not link to it.
Yes, I know it sounds complicated, but that is exactly the point. And there is more. There are two methods of ensuring that each block in the blockchain is legitimate and that makes the whole process even more difficult to understand.
What are Bitcoin and Ethereum?
In January 2009, an engineer with the alias Satoshi Nakamoto created Bitcoin, by far the most famous of all the cryptocurrencies. Subsequently, Namecoin and Litecoin were released. The idea took off and currently, there are over 10,000 cryptocurrencies worldwide according to Statista, including Ethereum.
Now we have reached the stage where in June 2021, El Salvador became the first country to accept Bitcoin as legal tender, followed by Cuba in August 2021, which passed a resolution to recognize and regulate cryptocurrencies. Meanwhile China, the single largest market for cryptocurrency, declared all cryptocurrencies illegal in 2021.
And in June 2022, Yale University researchers developed a new use for blockchain: a way to give individuals control over their genome. This new technology is called SAMchain and its purpose is to “ensure that individual genomic information remains secure and under the control of the individual. Since information cannot be changed once it is stored in blockchains, the technology also protects against occasional corruption of DNA data stored on the cloud, where most genomic information is now stored on far-flung networks of computers”.
Is it intensively energy consuming?
All the technology used to calculate proof of work, i.e the verification, for each new block requires energy. Because cryptocurrencies do not have centralized systems to verify the accuracy of new transactions and the data that is added to the blockchain, they rely on a network of participants to validate each new transaction and add them to the blockchain.
These participants solve complex math problems to add new blocks that verify new data, such as that from new cryptocurrency transactions. This is called mining. Miners compete to process the new block and the one who shows proof of work (the hash) gets a reward in the form of a small sum of coins. And this is why mining cryptocurrency is such a popular – and profitable – side-hustle. But this also means that a prodigious amount of energy is used by computers to make big calculations and build longer and longer chains.
This proof of work is the problem with cryptocurrency energy consumption. There are different estimations of how much energy the blockchain and mining cryptocurrency uses; some of them equating to energy consumption of a nation.
According to one estimate “Bitcoin, the world’s largest cryptocurrency, currently consumes an estimated 150 terawatt-hours of electricity annually — more than the entire country of Argentina, population 45 million. Producing that energy emits some 65 megatons of carbon dioxide into the atmosphere annually — comparable to the emissions of Greece — making crypto a significant contributor to global air pollution and climate change.”
As this technology becomes ever more popular, clearly, it will consume more energy.
Even if we all suddenly start using renewable energy, there is still the issue of electronic waste that is generated by our equipment. Therefore, we must consider the blockchain when we talk about climate change and controlling carbon emissions.
What is Ethereum’s Merge?
The first step towards this was taken in September 2022, when the world’s second largest cryptocurrency Ethereum announced that it has transformed its technology to cut carbon emissions by more than 99.9 percent. According to one estimate “the energy consumption of Ethereum mining is about 72 terawatt-hours a year, which is equivalent to the carbon footprint of Switzerland”. So, cutting down this consumption by 99 percent is a huge step in the right direction!
How was it done? The proof of work base was converted to a proof of stake base. Both do the same job but in different ways. In the proof of stake system, you do not need energy intensive hardware as you acquire coins. You just use the coins as collateral or stake and there is random selection through a software. Again, complicated but if it saves on carbon emissions, so far, so good.
However, it is likely that now there will be two different chains: a proof of work chain and a proof of stake chain.
Can the blockchain be sustainable?
The other side of the coin (pun intended) are those who consider cryptocurrency beneficial for sustainable development and for providing economic freedom to developing countries. For example, one estimate suggests that household tumble dryers in the U.S. consume 108 TWh of energy a year, while Bitcoin uses 62 TWh a year.
Perhaps we must weigh the societal benefits of cryptocurrency against its energy consumption requirements.
The United Nations Conference on Trade and Development (UNCTAD) says that blockchain technology can be harnessed to advance national development priorities, strategically diversify nations’ economies and achieve the Sustainable Development Goals (SDGs).
This debate will likely continue – and it should. We must surely take into consideration poverty alleviation and economic development of developing countries. But we should also consider all our new technology, as we plan ahead on how to curb carbon emissions and control climate change.
This is just one more discussion we should have. Let’s also remember that this is a relatively new technology and comes with all of its associated problems. This fact was brought home this November (2022) when the world’s biggest cryptocurrency exchange FTX collapsed. FTX was supposed to be a safe and reliable, as well as innovative way to trade digital currency, run by a genius multi-billionaire. Its collapse saw a lot of people incurring huge losses, so clearly it was neither safe nor reliable. Other similar projects have also failed, including Terra/Luna, Three Arrows Capital, Celsius, and Voyager. While cryptocurrency may seem fun, reliable and a potential source for ushering in a better future, let’s not be too hasty in jumping on this bandwagon.