Cryptocurrencies: what are the greenest blockchains

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

Also, Bitcoin tends to increase its energy requirements over time. The blockchain is in fact based on a mechanism deemed inviolable to validate transactions in cryptocurrencies, but also very greedy in electricity. This is the mining process working with the proof of work (“proof of work” in English): machines – in particular Asics composed of electronic chips programmed to mine bitcoin – run at full speed to try to solve an equation very complex math.

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The machine that finds the solution first obtains the right to secure the transaction, which results in the creation of a new block on the blockchain and in exchange confers 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 evolution of Bitcoin’s electricity consumption. University of Cambridge

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

Proof of stake much less consuming than proof of work

Proof of stake amounts to putting your cryptocurrency tokens into play to obtain the validation of a block. Token holders who wish to secure transactions are thus drawn by lot. “This is called a probabilistic model, with a draw,” explains Anaïs Bouchet, in charge of evaluating the impact of projects at Cardashift, a company specializing in blockchain to finance environmental and societal initiatives.

“All validators on the network have a chance of validating a block, but that chance is weighted by the number of tokens held,” she continues. “Blockchains that work with proof of stake are clearly those that consume the least,” finally emphasizes Anaïs Bouchet. The best known of these are Polkadot, Cardano and Solana.

“A draw, in terms of energy consumption, is very low. The computing power required is ridiculous”, adds Hadrien Zerah, managing director of Nomadic Labs, responsible for the development of the Tezos blockchain in France, which also works with proof of stake. This protocol, originally designed by two French people, has an annual carbon footprint equivalent to that of only 17 European households, according to an audit by PwC published in December 2021.

It is therefore no coincidence that Ethereum wants to switch from proof of work to proof of stake. The blockchain is due to undergo a big update, dubbed “The Merge”, which should finally come to fruition this summer. Proof of stake “is more than 2,000 times more energy efficient,” says Ryan Shea, crypto-economist at fintech Trakx, quoted in the 21 Million newsletter. “This is equivalent 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 consume less electricity

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

The Polygon blockchain, which is grafted onto Ethereum as a second layer (“layer 2”, in English), 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 the Binance cryptocurrency trading platform. Bitcoin, which is also experiencing network latency issues, sees the Lightning Network protocol playing this role.

In addition to improving “scalability”, these overlays have the advantage of reducing the electricity consumption needed to validate transactions. Polygon, for example, “compiles transactions, with a final consensus mechanism on Ethereum”, explains Anaïs Bouchet. Thus, “1,000 transactions can be carried out on Polygon requiring a single validation on Ethereum”.

To get an idea of ​​the level of energy consumption of each blockchain, “the ideal is to compare the quantity of kilowatt-hours needed”, according to the polytechnic engineer:

  • Bitcoin, and its proof-of-work mechanism, “consumes around 700 kilowatt-hours (kWh) to pass a transaction, or the energy needed to travel 1,400 km with a diesel car that consumes 5 liters/100 km”, specifies- she. Ethereum, which also works today with proof of work, however, requires less energy: around 140 kWh per transaction.
  • The overlays (layer 2) of the Ethereum blockchain, such as Polygon, require between 1 to 10 kWh per 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 transaction, the equivalent of searching the web with Google.

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Each blockchain has its advantages and disadvantages

Beyond energy consumption, each blockchain has its share of flaws and qualities. Proof of stake, for example, tends to benefit holders of many cryptocurrency tokens, who have a higher probability of being drawn. “It’s a small group of people holding a lot of tokens that controls the creation of cryptocurrency”, points out Guillaume Berche, product owner of the Paymium crypto exchange platform. “It’s a replica of the current centralized financial system, when Bitcoin involves a paradigm shift,” he believes.

Some therefore criticize proof of stake for creating a form of oligarchy, when the initial philosophy of bitcoin is based on the decentralization of exchanges and the mode of governance.

“It’s the same with proof of work and mining,” retorts 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 then afford to buy back mining hardware.” Guillaume Berche recognizes “a concentration effect”, but dismisses any oligarchic operation “as for blockchains with a proof-of-stake mechanism”.

Similarly, the Polygon blockchain, an overlay of Ethereum, works with an internal consensus mechanism to validate transactions, which “removes a lot of decentralization”, points out Anaïs Bouchet. In general, blockchains try to respond to the triptych “ security, scalability and decentralization”. They can be less efficient on one of these three dimensions to be better on another. For example, the Solana blockchain, under proof of stake, rather favors “scalability”, but it has experienced heavy outages and seems more vulnerable than Bitcoin.

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

It also depends on the energy used.

Beyond electricity consumption, the environmental impact of a blockchain, and in particular of 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 remains difficult to know in detail the origin of the energy used by the miners. Many point to surplus electricity produced by renewable energies, which would not be used for any other activity and would otherwise be lost. This is the case of the French mining companies Starmining and BigBlock Datacenter, which explain that they take advantage of the advantageous price of these surpluses.

But there is no independent study on the subject. And the mining activity still relies heavily on fossil fuels, such as electricity produced by coal-fired power plants. According the latest Bitcoin Mining Council report, made up of mining companies, around 58.4% of miners in the world would use a renewable energy mix. A figure on the rise, but which still shows the way to go for Bitcoin to be considered ecological

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Cryptocurrencies: what are the greenest blockchains

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