Blockchain basics: How scaling enables proof of work’s energy efficiency
The world is increasingly becoming vigilant about fighting against climate change by significantly lessening the carbon footprint of both minor and major contributors to greenhouse gas emissions. In fact, United States President Joe Biden continues to make the climate agenda one of the focal points of his policy, and has proclaimed the goal of becoming a carbon neutral country by the year 2050.
A couple of years ago, Tesla CEO and X owner Elon Musk brought to attention the fact that Bitcoin, the most popular and highly priced cryptocurrency, uses up a crazy amount of electricity, leaving behind an extremely high carbon footprint. This is the beginning of governments and other organizations scrutinizing the energy consumption of, not only Bitcoin, but all other cryptos.
“We are concerned about the rapidly increasing use of fossil fuels in Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel. Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment,” Musk wrote in his tweet that opened up a can of worms.
Because of this, attention shifted to the Proof-of-Work mechanism used by blockchains, which causes the high electricity consumption of Bitcoin mining. Blockchain is the technological foundation of Bitcoin and other cryptos. Although its first functional implementation is Bitcoin, blockchain can also be used to greatly improve digital systems and processes of businesses from different industries.
Although Musk was right in exposing this kind of high carbon footprint that is detrimental to all efforts to curb climate change, his statement led to a huge misunderstanding that hampered blockchain adoption. And until now, this misconception continues to persist for the many who accepted Musk’s statement at face value without digging a little deeper at its veracity.
Because the truth is, neither Bitcoin nor Proof-of-Work is energy inefficient and unsustainable. However, Musk’s statement was not completely false either. In order to fully explain this, it is important to first understand some blockchain basics.
How does blockchain work?
In 2008, Bitcoin white paper author Satoshi Nakamoto invented Bitcoin, a “peer-to-peer electronic cash system,” to address double spending and fraudulent transactions of the payment systems at the time. This is done by removing the need for trusted third-parties to process payments as they would be sent directly from one user to another.
Bitcoin is built on blockchain, a technology that records and stores each transaction in an immutable and chronological manner. It is both decentralized and distributed in nature, meaning no one authority has control of the data and each node on the network has a copy of the entire history of transactions. Miners have to agree before a change in transaction is made, making data manipulation next to impossible.
Each node or miner on the network completes transactions (buying or selling and sending or receiving of coins), timestamping and verifying them in the process. Transactions are entered into a data block; and once a block is full, it is then linked to other completed blocks, forming a chain.
Adding a block on the chain earns miners a fee per transaction, as well as a block reward, which consists of newly minted coins. At present a block reward is equal to 6.25 coins. Bitcoin has a fixed number of coins at 21 million. Every four years, block rewards are halved and it will continue to do so until coins are depleted, which is expected to be in the year 2140. When block rewards stop, miners would have to rely on transaction fees to earn.
What does Proof-of-Work do?
Adding a block on the chain is not as easy as it sounds. It is, in fact, quite difficult. In order for healthy competition to be maintained among miners, each would have to solve an extremely complex mathematical problem before earning the right to add a block on the blockchain. The act of solving the cryptographic equation is proof that work has been done; hence, it is called Proof-of-Work mechanism.
Solving the equation requires specialized equipment and supercomputers in a temperature-controlled facility, which then consumes a huge amount of electricity. According to the Energy Consumption Index compiled by Digiconomist in 2022, processing one Bitcoin transaction uses up 1,449 kWh, which is equivalent to the electricity that an average American household consumes for 50 days.
When viewed in this light, it is without a doubt that Proof-of-Work is consuming too much electricity and leaving a carbon footprint that would be extremely bad for the environment. However, it must be clarified that the Bitcoin that both Musk and Digiconomist referred to was actually Bitcoin Core (BTC).
It is referred to as the original Bitcoin by many due to it retaining the original ticker symbol of BTC. So, when people talk about Bitcoin, they actually mean BTC, which has actually been altered in a way that makes it far from the original Bitcoin. Changing the protocol, which is supposed to be fixed, and refusing to scale are two issues that led to two Bitcoin hard forks.
These forks resulted in the creation of Bitcoin Cash (BCH) and Bitcoin Satoshi Vision (BSV). The latter restored the original Bitcoin design according to the Bitcoin white paper. In doing so, BSV blockchain unlocked its blockchain’s ability to scale unbounded.
How is blockchain’s energy consumption calculated?
Scalability refers to a blockchain’s ability to increase its data block sizes and transaction capacity or throughput. These two are crucial to calculating a blockchain’s energy consumption as it can only be accurately measured through the number of transactions that have been processed. Looking at the amount of electricity being consumed is not enough, it should also be viewed against what it is used for. In blockchain’s case, it is the number of transactions.
For instance, since BTC refused to scale, it only has a data block size cap of 1MB and a throughput of seven transactions per second (TPS). Each block can contain about 2,000 transactions. Now, compare it to a fully scalable blockchain like BSV.
The BSV blockchain is completing 4GB blocks at a throughput of 50,000 to 100,000 TPS. Each block can contain from two to three million transactions. Last May, BSV blockchain even set a new world record by completing over 86 million transactions in 24 hours. And these figures will still go up as the network scales.
Given that both Proof-of-Work blockchains consume the same amount of electricity, it will be impossible to conclude that they have the same energy consumption per transaction. BTC’s was really high because of its small block size and extremely low throughput.
In fact, according to a blockchain sustainability index updated daily, BTC consumes 332.52 kWh per transaction averaging 3.01 transactions per hour (TPH), while BSV only uses up 0.11 kWh per transaction due to it processing 8846.75 TPH. Their carbon footprint is likewise computed to be at 66.5032 kg CO2e/txn and 0.0226 kg CO2e/txn, respectively.
With these numbers, it is clear that scaling is the solution in order for digital currencies and blockchains to become sustainable and environment-friendly. As blockchains process a higher number of transactions, the lower their carbon footprint will be. And when block rewards are no longer given, miners will still be able to thrive due the fees they will earn from the sheer number of transactions being processed.
So, Bitcoin—the original design as restored by BSV blockchain—and Proof-of-Work are both energy efficient and sustainable technologies. BTC, on the other hand, is not and will never be unless it is able to scale in the future.
The editorial unit
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