The growing energy consumption for mining digital assets has recently attracted more and more public attention. Just recently, Tesla CEO Elon Musk announced that the company will suspend the sale of its cars for Bitcoin and will resume sales only after switching to more environmentally friendly energy sources. Until then, Tesla will explore other, more energy-efficient cryptocurrencies. What is the danger of PoW and why should you pay attention to PoS?

Interestingly, one of the first Bitcoin users, scientist Hal Finney, first raised the question of how to reduce carbon emissions from the potentially widespread adoption of Bitcoin back in January 2009, just three months after the first publication of the Bitcoin white paper.

Public and open blockchains such as Bitcoin and Ethereum, the first and second-largest blockchains by market capitalization, rely on the proof of work (PoW) protocol to process transactions and ensure network security.

Essentially, miners compete to solve incredibly complex mathematical problems using specialized hardware. This consumes a significant amount of electricity. Over the past few years, as the prices of Bitcoin (BTC) and Ethereum (ETH) have risen, more and more miners have joined in increasing their hash power. The Cambridge Center for Alternative Finance estimates that the current annual electricity consumption of the Bitcoin network is about 145 terawatts per hour, which is about 0.65% of the total global electricity consumption.

Mining farm located in Kentucky (USA)

This would put the Bitcoin blockchain among the top 30 largest electricity consumers in the world if it were a country. Globally, mining in China accounted for about 71% of the current global hash power, with the US and Russia accounting for about 7% each.

Estimated electricity consumption by the Bitcoin network (2015–2021), TWh (year-on-year)
Source: IRENA, based on data from the Cambridge Center for Alternative Finance.

According to other estimates, the annual estimated electricity consumption of the Bitcoin network is much lower, closer to 75 TWh. This discrepancy shows the uncertainty of estimates and the need for more standardized methodologies and data to correctly estimate the energy consumption from cryptocurrency mining. It is known that extrapolating the current energy consumption and carbon emissions from mining using the PoW blockchain is difficult, and estimates vary greatly.

Energy consumption forecasts require several difficult assumptions, including the future price of the token (as well as network fees), the network hash rate, the distribution of mining locations, and the future energy consumption structure of these mining farms, as well as their location.

Renewable Energy Makes Economic Sense for the Future of Mining

A significant share of all mining under the PoW protocol is already provided by renewable energy sources, but the exact share is unknown. According to the Cambridge Center for Alternative Finance, an average of 39% of Proof-of-Work mining is powered by renewable energy sources, primarily hydroelectric power. Other studies, such as the CoinShares Research report on the Bitcoin mining network, estimate the share of renewable energy in Bitcoin PoW mining at 74%.

The main problem in determining the share of renewable energy sources in Bitcoin mining, and PoW mining in general, is the variable nature of renewable energy sources.

For example, in Sichuan Province (China), where most of the digital asset mining took place, the average power generation capacity during the rainy season is three times that of the dry season. Because of these fluctuations in hydroelectric power production, Bitcoin miners can only use cheap hydropower for certain periods.

Since electricity is the main operating cost for miners, there is fierce competition in finding the cheapest energy sources. This makes low-cost renewable electricity, whose availability has declined dramatically over the past decade, an attractive option. More than half of the renewable energy sources commissioned in 2019 achieved lower electricity costs, compared to using coal.

One of the arguments of the supporters of cryptocurrencies created by the PoW protocol is that mining uses excessive generation of renewable energy sources. This reduces the cost of energy production and provides financial support for the development of renewable energy, the cheapest source of energy in many parts of the world.

There is evidence that miners mainly rely on electricity generated by classical methods, such as fossil fuels. However, this raises an interesting question: as the cost of renewable energy continues to fall, will PoW miners follow a strategy where the production of consumer goods was moved to places of cheaper energy production.

Several initiatives are trying to accelerate the transition to renewable energy. The Crypto Climate Agreement, a partnership between Energy Web, the Rocky Mountain Institute, and the Alliance for Innovative Regulation, is currently working to ensure the cryptocurrency industry transitions to 100% renewable energy by 2030. The goals of this agreement are being considered at a high level ahead of the United Nations Climate Conference (COP 26) later this year. Twitter and CEO Jack Dorsey have announced that a Bitcoin clean energy investment initiative will be launched in December 2021. The total fund will be $10 million to support companies that help promote the adoption of renewable energy in the Bitcoin ecosystem.

Improving energy efficiency through new approaches to mining

Despite the high energy demands of PoW blockchains such as Bitcoin or Ethereum, new consensus mechanisms are being developed and implemented, including Proof-of-Stake (PoS), which eliminates the need for mining. The imminent transition of Ethereum from PoW to PoS should reduce the network’s energy demand by about 99%.

Promising second-tier solutions are also being built based on the two largest blockchains to reduce energy consumption and transaction fees for network participants. For this purpose, blocks of large volumes of second-level transactions will be used, and only occasionally for calculations and verification of their validity -

first-level transactions. Several solutions built on the Ethereum blockchain already offer ways to radically reduce energy consumption.

The cost of renewable energy has declined rapidly over the past 10 years (2010–2019) Source: IRENA (2020), Renewable Energy Production Costs in 2019, International Renewable Energy Agency, Abu Dhabi.

Bitcoin developers are also working on the Lightning Network, a second-tier solution that will significantly reduce the power consumption of the network by transferring most transactions from the main blockchain. Many promising concepts are currently being tested and developed and are aimed at further reducing the power consumption of PoW blockchains in the near future.

Also worth mentioning are blockchains created specifically for use cases in the energy sector, such as the Energy Network blockchain, which relies on Proof-of-Authority (PoA) to achieve consensus, as opposed to PoW, which makes them much more energy efficient.

PoS — alternative to PoW

While the shift from PoW to more energy-efficient consensus tools could dramatically reduce carbon emissions, Bitcoin will remain a PoW blockchain for the foreseeable future. Given the huge energy consumption of PoW mining operations, as well as their digital nature, there is a need to use cryptocurrencies powered by PoS technology.

This is where the qualities and tools of systems based on the PoS protocol manifest themselves. For example, Quantum Resistant Anonymous Transactions QRAX systems.

The preservation of rights and freedoms, secure financial data, and a blockchain that protects privacy all increase profitability and ensures widespread adoption in an efficient, cost-effective, and environmentally friendly way at the protocol level. QRAX simultaneously increases security and provides resistance to censorship or exploitation of rights and freedoms on the network.

To solve the above problems in the current cryptocurrency community, QRAX encourages each node in the network to participate in the block generation process by implementing a Proof of Stake consensus algorithm to decide which block will be linked next. The other layer of the network contains masternodes that provide second-level network functions, such as self-management, self-development, and self-financing mechanisms. When using PoS, 99% less electricity is consumed than in PoW, which makes this technology better in terms of ecology.

The Way Forward

Blockchain technology is not going anywhere. It offers real and important new ways to share values safely and transparently. Recent announcements by major corporations such as Tesla, MicroStrategy, and others to include Bitcoin in their assets have further cemented the role of blockchain in the mainstream financial world.

Many participants in the blockchain industry are focused on reducing energy consumption through new consensus-building tools and innovative scaling tools, which were discussed earlier. Although PoW mining is by no means the largest consumer of electricity, due to its prominence, it draws a lot of attention to the carbon intensity of the electricity sector as a whole, which highlights the advantages of the PoS model and cryptocurrencies powered by this technology.




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