Blockchain and the environment: a primer on Ethereum's carbon footprint
Hi Friends,
For most of you, this primer is going to seem completely out of the blue. But, in the wake of the recent uproar about Elon Musk and Bitcoins carbon footprint, I asked my followers on Instagram if they would like me to release some research I made into Ethereum’s carbon footprint?
The answer was a resounding “Yes”.
Since a lot of my followers are also subscribers to my newsletter, I thought why not release it here.
This document is intended to be a primer - packed with plenty of links to other sources, and contains copy from those other sources. The reason for this is that it’s intended function was only as an internal document made to bring a project team, who I worked on a AR & NFT proposal with, up to speed on the environmental costs of using Ethereum - allowing them to use this document as a starting point for them to do deeper research.
Now that it’s public, I implore you to use it in the same way.
Purpose
This document hopes to provide the resources for a basic understanding of the environmental externalities of blockchains, particularly the Ethereum blockchain, and the extent to which these externalities are being addressed.
Summary
The Ethereum Devs are, as we speak, implementing new protocols which will result in Ethereum adopting a Proof of Stake Consensus mechanism, which serves to potentially reduce Ethereum's energy consumption by 99% - this update is scheduled to arrive in July of 2021. This, coupled with the development of carbon efficient measures, means that Ethereum should be able to scale with very little damage to the environment.
First thing’s first, Is a Blockchain the same as a cryptocurrency?
No, before you proceed, It’s important to understand the difference between a Blockchain and a cryptocurrency. This is the difference between Ethereum and Ether (ETH) and between Bitcoin and bitcoin(BTC).
Simply put, you can think of Ethereum and Bitcoin as Countries and Ether (ETH) and bitcoin (BTC) as their native currency - much like how the U.K has GBP.
These “countries” (Networks) naturally record the ownership of their native currencies (cryptocurrencies*).
“The Bitcoin network maintains a distributed public ledger that records the ownership of all bitcoin, the native digital asset token of the network” - Source : Gemini
* note that the words token, cryptocurrency, and coin are all used interchangeably here. In this context we are referring to (Fungible) tokens, not to be confused with NFT’s (Non fungible tokens) - more on that in a different piece.
How are they recorded?
All transactions occurring on the Bitcoin and Ethereum** networks are grouped together as blocks and added sequentially on to a chain of blocks called a Blockchain.
The Blockchain needs to be kept secure and this is done by Miners. A Miners job is to secure the blockchain, verify transactions and, by doing so, mint new coins/tokens.
This mining process is the primary cause for Blockchain’s massive carbon footprint.
** One should note that Ethereum and Bitcoin are different; in value proposition, in respective utility, and in intended purpose, (Bitcoin is more of a store of value and Ethereum is more of a world supercomputer). That said, this is not what i’m here to explain - Im simply using Bitcoin, the most popular blockchain, to help explain Ethereum.
Definitions
Transactions
Transactions are cryptographically signed instructions from accounts. An account will initiate a transaction to update the state of the Ethereum network. The simplest transaction is transferring ETH from one account to another.
Blocks
Blocks are batches of transactions with a hash of the previous block in the chain. This links blocks together (in a chain) because hashes are cryptographically derived from the block data. This prevents fraud, because one change in any block in history would invalidate all the following blocks as all subsequent hashes would change and everyone running the blockchain would notice.
Mining
Mining is performed by high powered computers which solve complex mathematical problems called blocks, both verifying the crypto currency and rewarding the miner with the native currency at the same time (much like how mining extracts gold from the ground). The complexity increases with every problem solved, which requires more powerful computers and thus more computational power. Miners are people who purchase very expensive computers in order to solve these computational problems and earn a coin.
Example : A bitcoin miner is someone who mines Bitcoin blocks for the sake of gaining additional Bitcoin.
Proof of Work (PoW)
Proof of Work is a consensus mechanism used widely in cryptocurrency mining, for validating transactions and mining new tokens. Proof of Work (PoW) is a decentralized consensus mechanism that requires members of a network to expend effort solving an arbitrary mathematical puzzle to prevent anybody from gaming the system. This prevents users "double spending" their coins, creates competition, and ensures that the blockchain is incredibly difficult to attack or overwrite.
In conclusion, PoW allows the nodes of the given blockchain network (Bitcoin or Ethereum) to agree on the state of all information recorded on said blockchain, and prevents certain kinds of economic attacks. The biggest con of PoW is that, at scale, it requires huge amounts of energy, which only increases as more miners join the network.
Proof of Stake (PoS)
Proof of Stake is a consensus mechanism (PoS) which allows individuals to become validators, as opposed to miners; meaning that instead of using computer power to mine and thus verify blocks, users stake (lock up) their tokens in order to become validators to verify blocks. Simply put, Proof of Stake affords mining power based on the percentage of coins held by a user, unlike proof of Work which essentially affords mining power based on the amount of computer power held by a miner.
For instance, a validator who owns 3% of all Bitcoins available can theoretically mine only 3% of the Bitcoin blocks.
What are consensus mechanisms?
Consensus mechanisms
Public blockchains that operate as decentralized, self-regulating systems work on a global scale without any single authority. They involve contributions from hundreds of thousands of participants who work on verification and authentication of transactions occurring on the blockchain, and on the block mining activities.
In such a dynamically changing status of the blockchain, these publicly shared ledgers need an efficient, fair, real-time, functional, reliable, and secure mechanism to ensure that all the transactions occurring on the network are genuine and all participants agree on a consensus on the status of the ledger. This all-important task is performed by the consensus mechanism, which is a set of rules that decides on the contributions by the various participants of the blockchain.
Why do blockchains need a consensus mechanism?
Because they are decentralized and peer-to-peer by design, blockchains such as cryptocurrency networks require some way of achieving both consensus and security. Without a proof mechanism, the network and the data stored within it would be vulnerable to attack or theft.
The significant carbon footprints left by both Bitcoin and Ethereum are mostly a result of their consensus mechanisms which serve the function of securing the crypto currencies by preventing users from printing extra coins they didn't earn, rendering the currency essentially useless.
Most digital currencies have a central entity or leader keeping track of every user and how much money they have. But there’s no such leader in charge of cryptocurrencies like Bitcoin and Ethereum. Proof of Work was needed to make the online currency work without a company or government running the show.
It is important to understand that Proof of Work is slowly being replaced by a much more scalable alternative called Proof of Stake - which we will get to later
Proof of Work & Proof of Stake
What Does Proof of Work Mean?
Proof of Work is a widely used consensus mechanism in cryptocurrency mining, for validating transactions and mining new tokens. PoW requires nodes on a network to provide evidence that they have expended computational power (i.e. work) in order to achieve consensus in a decentralized manner and to prevent bad actors from overtaking the network. Proof of work at scale requires huge amounts of energy, which only increases as more miners join the network
What does Proof of Stake mean?
Proof of Stake is another type of consensus mechanism used by blockchain networks to achieve distributed consensus.
The Proof of Stake concept was created as an alternative to the Proof of Work (PoW) concept, to tackle inherent issues in the latter, particularly the mining power problem. Mining requires a great deal of computing power to run different cryptographic calculations to unlock the computational challenges. The computing power translates into a high amount of electricity and power needed for the proof of Work.
The Proof of Stake seeks to address this issue by attributing mining power to the proportion of coins held by a miner. This way, instead of utilizing energy to answer Proof of Work puzzles, a Proof of Stake miner is limited to mining a percentage of transactions that is reflective of their ownership stake. For instance, a miner who owns 3% of the coins available can theoretically mine only 3% of the blocks.
Proof of Stake comes with a number of improvements to the Proof of Work system:
better energy efficiency – you don't need to use lots of energy mining blocks
lower barriers to entry, reduced hardware requirements – you don't need elite hardware to stand a chance of creating new blocks
stronger immunity to centralization – Proof of Stake should lead to more nodes in the network
What does all of this have to do with Ethereum's Carbon footprint?
Bitcoin vs Ethereum : Carbon footprint
The ‘Proof of Work’ system that both Bitcoin and Ethereum are currently based on means their energy use and thus greenhouse gas emissions are higher than other forms of currency Each time currency is bought or sold it is transferred in a network. This is called a transaction. With more transactions per block, Ethereum has a lower carbon footprint per transaction than the Bitcoin blockchain.
These cryptocurrencies’ current carbon footprints are significant. With over 7.7 million tonnes of CO2 Bitcoin’s footprint is roughly equivalent to the total carbon emissions of Costa Rica for one year. While Ethereum’s is almost 60% lower at around 3.1 million tonnes of CO2 , it is still roughly equivalent to the total carbon emissions of Namibia over the same time period. This means that, as it stands, Ethereum is a pretty carbon intensive world computer - but this is set to change.
Is Ethereum more efficient?
Diagram below :Ethereum has a significantly lower carbon footprint than Bitcoin
How can it get better?
Cleancoin Project
The CleanCoin project assesses the climate impacts of the Bitcoin and Ethereum cryptocurrencies, suggests ways to reduce their carbon footprint and provides live greenhouse gas emissions calculators to track their progress over time. It aims to raise awareness, provide opportunities for wallet holders to take action, and help define the key attributes of a sustainable digital currency.
In 2017 the CleanCoin project listed the possible solutions to the carbon footprint problem faced by Bitcoin and Ethereum:
Proof of Stake could be a much more energy efficient alternative to the Proof of Work system now used to verify and validate a transaction or block.
Green labels can be developed for cryptocurrency miners and Blockchain technologies that are driven by renewables or use more energy efficient systems.
Carbon offsetting options for cryptocurrencies can be developed – the cost of offsetting would be much lower than the value of the coins.
More efficient hardware is available. If Ethereum mining hardware were as energy efficient as the specialised hardware used for Bitcoin mining, its overall emissions per coin and per transaction would be even lower when compared to Bitcoin.
Ethereum 2.0 : Ethereum moves to PoS
In December of 2020 Ethereum Launched Beacon Chain, which is essentially the mechanism which will move Ethereum from Proof of Work to Proof of Stake, drastically reducing its carbon footprint by potentially 99%. This is due to come into effect on July 14 2021. This means that we potentially have little to worry about with regards to how much our use of NFT tech might affect the environment, we can also propose carbon offsetting for each item sold if need be.
See more information regarding Ethereum 2.0 on the Ethereum website
Clean energy
Some groups are working to use clean energy to power crypto mining facilities instead of fossil fuels, as a measure of reducing the carbon footprint. That said, this is reportedly where some politics comes in.
“Projects from Canada to Siberia are striving for ways to wean bitcoin mining away from fossil fuels, such as using hydropower, or at least to reduce its carbon footprint, and make the currency more palatable to mainstream investors.
Some are attempting to repurpose the heat generated by the mining to serve agriculture, heating and other needs, while others are using power generated by flare gas - a by-product from oil extraction usually burned off - for crypto mining.” - Source : NBC News
Political barriers for Bitcoin
Also coming from NBC:
“The dominance of Chinese miners and lack of motivation to swap cheap fossil fuels for more expensive renewables means there are few quick fixes to bitcoin's emissions problem, some industry players and academics warn.
Chinese miners account for about 70% of production, data from the University of Cambridge's Centre for Alternative Finance shows. They tend to use renewable energy - mostly hydropower - during the rainy summer months, but fossil fuels - primarily coal - for the rest of the year.” - Source : NBC News
That’s all she wrote! I hope that this primer has encouraged you to do some research of your own and shed some light on what’s going on in the cryptosphere!
I don’t normally write long form articles , as I understand how little time there is for it these days, but do let me know if you would appreciate more informational pieces like this.
Thank you all for reading!
-O
Brilliant writing and concept