Contrary to what is portrayed in public debates and the media, neither the length of the Blockchain, nor the number of transactions have a major impact on energy consumption. An overview of the carbon footprint of Bitcoin, Ethereum and non-fungible tokens (NFTs).
Two distinct parts add up to the total consumption of Blockchains like Ethereum and Bitcoin. The first part is for running the computers on which a Blockchain is stored – called nodes. The official number of nodes for both Bitcoin and Ethereum is around 10’000 – although it is suspected that many more nodes conceal their existence.
The second and much larger portion of energy is spent generating new units and validating transactions (mining). Anarchic Blockchains like Bitcoin allow pseudonyms to participate in block creation. To make this expensive and block restructuring (51% attacks) impossible, the Proof of Work algorithm was intentionally integrated. An attacker must expend real economic resources to succeed.
Proof of Work
Estimates from the University of Cambridge put Bitcoin’s current energy consumption at 130TWh per year. This is equivalent to 15 gigawatts of continuous power consumption. If Bitcoin were a country, its annual energy consumption would fall between the mid-sized countries of Ukraine and Argentina. Some estimates of Ethereum’s annual energy consumption put it at around 26TWh. This is equivalent to 3 gigawatts, comparable to Ecuador – a country with a population of 17 million.
The differences in energy consumption become even more apparent when we compare the cost of a single transaction on the network. The Bitcoin network can only perform about 5 transactions per second. The energy cost per transaction in this case is 830kWh. Visa does 450’000 transactions with the same energy. Ethereum consumes an energy cost of 50kWh per transaction at about 15 transactions per second.
According to a September 2020 report by the Cambridge Centre for Alternative Finance, 39% of Crypto mining energy is renewable. CoinShares optimistically estimates the number at 77.6%, but has a commercial interest in showing the industry in a good light. Using the Cambridge Centre study’s conservative estimate, approximately 78.7 TWh is created from non-renewable energy.
Proof of Stake
A Proof of Stake (PoS) network such as Tezos creates 52 transactions per second and the energy cost is 30mWh per transaction. This is an immense difference and a logical step when we consider previous industry developments. Ethereum is currently in the transformation phase to the Proof of Stake model, which should reduce energy consumption by 99%. ETH 2.0 has already started its initial phases and we expect to move to PoS in late 2021 to early 2022. This may not be ideal, but we already have a viable solution in place.
In contrast, in a proof of work system, the price of the energy consumed is the barrier for attackers. It represents the cost of overriding consensus, so the financial outlay for the consumed energy may never decrease. As the value of the Bitcoin or Ethereum network increases, the energy consumed must usually increase as well. This is the only way to protect the increasing value stored in the network. In a Proof of Stake network, there is no such dependency, and therefore the energy consumption is negligible in comparison.
Are NFTs climate killers?
It takes about 494 kWh or the equivalent of boiling 2’700 liters of water to produce a single cotton T-shirt. This does not include the energy needed for washing and drying. The energy consumed is equivalent to about 10 transactions on the Ethereum Blockchain. On average, it takes about 4 transactions to mint and sell a non-fungible token (NFT).
Thus, if an artist decided to release clothing for their brand instead of an NFT, they would consume 98’800 kWh for 200 shirts. This is comparable to the energy consumption of 8 years of an average household or the equivalent of 2058 Ethereum transactions. In fact, NFTs don’t seem to consume that much energy at all, the numbers are just far more transparent.
However, NFTs should not be reduced to digital images alone. The versatility of smart contracts includes diverse industries, optimizes processes and can save waste. For example, when tickets are no longer printed but presented and validated digitally. Or if plastic membership cards and bonus cards disappear from wallets. A secure digital identity could save many a mailing and office visit.
Awareness for the “Revolution”
As with gasoline, a revolution takes time. However, with the century of concrete and office buildings spread around the world containing air conditioners, computers and neon lights, Blockchain technology simply can’t keep up with the energy consumption.
Awareness has arrived in the growing crypto industry. Efficiency improvements, offsets for NFTs, and tree planting campaigns will possibly show a bigger effect than the Green Bonds of national banks.
At the moment, the situation is definitely not optimal. Decentralized distribution will never be as cost-effective as a centralized solution. However, depending on the use case, the advantages of decentralization outweigh the disadvantages. A centralized point of operations is more vulnerable to ransomware attacks, a data leak, or various single point of failure scenarios.