Blockchain’s Energy Crisis

Dan Wellers and Christopher Koch

Remember the oil crises of 1973 and 1979? Though much of the industrialized West and Japan felt the shock, gasoline was in such short supply in the United States that the federal government cut the national speed limit to conserve it and drivers lined up for hours to fill their tanks at sky-high prices.

The blow to industrial economies was profound – but it also encouraged positive changes in energy usage, from limits on lighted advertising signs to greater fuel cleanliness and efficiency requirements for cars.

Something similar may be happening today as people realize that technology is a power hog. Servers don’t have to line up at the power station, but the more powerful they get, the more electricity they devour.

According to one 2017 study, the global demand for computing power and connectivity will consume 20% of the electricity generated worldwide by 2025 while churning out up to 5.5% of the world’s carbon emissions. We may be so focused on the benefits of streaming movies on the subway or analyzing vast stores of customer data that we’re losing sight of the costs.

On the other hand, like the energy shocks of the 1970s, this impending crisis may also end up creating unanticipated opportunities, in this case increased supplies of electricity from renewable sources. Whether the technology industry can use those opportunities to shrink its growing cloud of carbon emissions depends on how events play out.

A shocking level of energy consumption

One now well-publicized example of technology’s power problem is the blockchain. Blockchain’s use of intensive cryptographic computations to verify the existence and validity of transactions first attracted attention as the basis of cryptocurrencies like Bitcoin. But now all kinds of industries are considering it as a solution to challenges of authentication, identity, and trust.

There’s one big problem, though: it’s the energy consumption equivalent of Grandma’s gas-guzzling 1973 Ford LTD.

What makes a blockchain work is the consensus of all the computers on its network that every transaction on the blockchain is true. The competition between computers to arrive at that consensus by solving cryptographic puzzles is known as “mining.” And mining uses powerful, purpose-built computer chips and software, plus a reliable Internet connection and air conditioning to keep CPUs cool as they churn away 24/7 at complex calculations.  All of that consumes an enormous amount of electricity.

How much?

So much that if miners were a country, they would rank 39th in the world for energy consumption, slightly more than Bangladesh or Romania.

So much that mining generates as many carbon dioxide emissions a year as 1 million transatlantic flights.

So much that a single Bitcoin transaction consumes as much energy as almost 500,000 Visa transactions.

So much that cryptocurrency miners are setting up server farms in places with inexpensive electricity, like Iceland (which has ample geothermal power), rural China (which has underused hydroelectric power plants), and small-town America, and putting a burden on their electrical infrastructure.

Indeed, one upstate New York town attracted so much mining activity that in March 2018 it had to impose an 18-month moratorium on new mining operations to stop them from literally using up the town’s electricity supply.

Some argue that estimates of blockchain’s power consumption are overblown, but even if that’s true, it’s still far from energy-efficient. In fact, it poses an awkward conundrum: this technology was invented to make transactions more efficient is itself profoundly wasteful.

Current thinking about solutions

The problem may already be in the process of solving itself. First, there is the never-ending march forward in chip speed and efficiency, which delivers more compute power using less electrical power. Specialization helps, too. For example, in May 2018 Intel filed a patent for a system-on-a-chip specifically optimized to use less space and energy for mining, joining similar initiatives from Samsung, Nvidia, and AMD as well as a proprietary chip from Bitmain, the world’s largest Bitcoin miner.

At the same time, the evolving blockchain industry is looking at less power-ravenous approaches to authenticating transactions. Right now, the leading approach, proof of work, expends massive amounts of energy as miners compete to demonstrate that each transaction can be trusted.

One emerging alternative is proof of stake, which validates transactions not based on how much effort a participant in the blockchain puts in to solve the computational puzzle. Though it’s still in development, proof of stake would be hugely more energy-efficient than proof of work by eliminating the competition among miners.

Another alternative still in early stages is proof of authority, which would rely on a small but diverse number of known validators on a blockchain network who are rewarded for their work with transaction fees that aren’t related to the type or value of the transaction. Rules would be established to govern who becomes a validator and how they validate transactions.

Even if none of these alternatives pan out, it’s still possible that blockchain’s impact on carbon emissions will drastically decline over time. The mining computers that calculate and maintain blockchains can be located anywhere in the world, but because of their prodigious use of electricity, they’re increasingly set up where the cheapest power is available.

That could well drive energy production to be more widely distributed and decentralized, from hydroelectric plants on remote rivers to acres of solar panels in deserts. And that, in turn, could spur investment in new renewable energy sources and power storage for an abundance of cleaner, less expensive electricity.

On top of all this, blockchain could also make the power grid itself smarter, more efficient, and greener. Once we can generate low-carbon energy at scale, with IoT-enabled devices measuring production and demand in real time, we’ll be able to use blockchain to make sure power gets from where it’s produced to where it’s needed without human supervision. And that will further ensure that blockchain (and technology in general) becomes a high-efficiency engine for our economy instead of contributing to a global environmental crash and burn.

Read the executive brief Threat and Opportunity: Blockchain’s Hunger for Power.

About Dan Wellers

Dan Wellers is the Global Lead of Digital Futures at SAP.

About Christopher Koch

Christopher Koch is the Editorial Director of the SAP Center for Business Insight. He is an experienced publishing professional, researcher, editor, and writer in business, technology, and B2B marketing.