The implications of “blockchain technologies” are vast, but perhaps the most concerning is that of energy consumption. First, the idea of “blockchain” technologies must be clarified as this is not a helpful phrase. Instead, it is a generalized abstraction for what are very specific technological achievements. If we are to examine the technical achievements of Bitcoin, one might be tempted to say that bitcoin uses “blockchain technologies” to validate transactions; however, there are really three innovative ideas utilized by the cryptocurrecy: peer-to-peer networking, blockchains, and consensus mechanisms. The idea of peer-to-peer networks is nothing new and blockchains are nothing more than a method to store and validate data. It is the idea of consensus mechanisms that are truly disruptive. Peter Van Valkenburgh, Director of Research at the Coin Center, in a 2016 report wrote the following about consensus mechanisms1:
“In a sense, networks powered by open consensus mechanisms mirror the early Internet, and may one day become as indispensable as the Internet in facilitating free speech, competition, and innovation in computing services.”
Valkenburgh goes on to say that there are three areas to which this technology will become essential: electronic cash, identity data, and the Internet of Things. Only one of these three areas has begun to realize the disruptive potential of consensus mechanisms: electronic cash. As of June 12, 2018 the market cap of Bitcoin alone was approximately 110 billion dollars, with the entire cryptocurrency market valued at over 400 billion dollars. While the values of cryptocurrencies like Bitcoin have fallen in the recent months2, the number of mining machines brought online continues to climb3. This growth is unlikely to decline anytime soon. Consider that the return on investment for Bitcoin depends on four knowable variables: the cost of electricity; energy consumption per unit of mining; the price of Bitcoin; and the difficulty of the Bitcoin algorithm, which is predetermined and increases as more coins are mined4. Adam Hayes, in a 2015 working paper4, estimates that at the current block reward (now 12.5 Bitcoins per block) and using machines with an energy efficiency of 100 Watts per GH/s (if the electricity cost is $0.115 per kWh), the breakeven point for mining would be $494.54 per Bitcoin. Considering that one of the world’s largest Bitcoin mines recently admitted to paying $0.04 per kWh5 and that the current market value of Bitcoin is more than $6,0002, mining Bitcoin has a long way to go before becoming an unprofitable venture.
An issue of increasing concern is the electricity required to run all of these machines, which are carrying out the consensus mechanism through a process known as Proof of Work. Proof of Work is the transaction validation method utilized by Bitcoin and other cryptocurrencies, and it is highly energy intensive. Estimates of the exact amount of energy required for these cryptocurrency networks vary. This uncertainty is due to (1) mining operations rarely divulge information about their operations (2) energy consumption depends on the type of machine used and the cooling requirements of the operation. Likely the best estimate to date is the Bitcoin Energy Consumption Index (BECI), the framework for which is peer-reviewed and accounts for cooling energy requirements, a sizeable and often overlooked contributor. A recent report by Morgan Stanley produced a similar estimate, providing further validation of the approach. The latest estimate from BECI suggests that the annual consumption of electricity for the Bitcoin network is 71.12 TWh, approximately equivalent to the country of Chile6. On a per transaction basis, this 455,000 times more energy consumption than a transaction using a visa card7. According to BECI, this puts the annual carbon footprint of that electricity at 35kt CO2, or 500 kg CO2 per transaction on the Bitcoin network. This estimate is for Bitcoin alone, which is barely more than one fourth of the cryptocurrency market by value.
Blockchain clearly has a lot of barriers to overcome in terms of its energy consumption, but the potential for the technology to revolutionize supply chains is substantial. As a result, the University of Arkansas has established the Blockchain Center for Excellence. The center was announced in a press release on August 2nd, 2018. The mission of this center is three-fold. It aims to develop and establish research partnerships by conducting collaborative industry-university research, promote and enable dissemination of knowledge about blockchain, and accelerate industry adoption of blockchain technology. The Resilient Food Initiative is excited for the opportunities presented by this new center, and we are looking forward to applying the research knowledge from the center to the pursuit of more sustainable and secure food production.
- Van Valkenburgh, P. Open Matters: Why Permissionless Blockchains are Essential to the Future of the Internet. Coin Center (2016).
- Blockchain Luxembourg. Cryptocurrency Markets. (2018). Available at: https://blockchain.info/markets.
- De Vries, A. Bitcoin Sustainability Report January 2018. Digiconomist (2018). Available at: https://digiconomist.net/bitcoin-sustainability-report-01-2018. (Accessed: 15th June 2018)
- Hayes, A. A Cost of Production Model for Bitcoin. (2015).
- De Vries, A. A Deep Dive in a Real-World Bitcoin Mine. Digiconomist (2017). Available at: https://digiconomist.net/deep-dive-real-world-bitcoin-mine. (Accessed: 15th June 2018)
- De Vries, A. Bitcoin Energy Consumption Index. Digiconomist (2018). Available at: https://digiconomist.net/bitcoin-energy-consumption. (Accessed: 15th June 2018)
- De Vries, A. Renewable Energy will not Save Bitcoin. Digiconomist (2017). Available at: https://digiconomist.net/renewable-energy-will-not-save-bitcoin. (Accessed: 15th June 2018)