6 min readThis is the last article in our three-part series on crypto and energy. If you haven’t read Why does Crypto Consume Energy and BTC: Towards a Greener Blockchain, you might want to start there.
Previous articles focused on Bitcoin, the world’s biggest crypto asset. We’ve seen that Bitcoin mining, despite being maligned for its environmental impact, accounts for only 0.08% of global CO2 emissions (by December 2021). In addition, Bitcoin miners are increasingly relying on renewable energy.
But other blockchains are making even greater strides towards sustainability. For this final article, we’ll shift our focus on the Proof of Stake mechanism, which currently fuels the Ethereum ecosystem and many other blockchains.
What Is Proof of Stake?
Blockchains are essentially decentralised ledgers. You can think of them as massive, distributed databases, where transactions are recorded under the community’s scrutiny. As there is no central authority validating operations, users themselves are in charge of keeping the database reliable and healthy.
Blockchain network designers have put in place consensus mechanisms to make sure everybody agrees on the rules - and to incentivise users through rewards. In 2009, Satoshi Nakamoto, Bitcoin’s pseudonymous creator, introduced Proof of Work (PoW) - still used to this day by Bitcoin. In order to add new Bitcoins to the network, nodes (computers independently running Bitcoin software) must prove they have solved complex cryptographic problems to be compensated with a fraction of the created token.
PoW is energy-intensive by design, as it requires a lot of computing power. That’s why another consensus mechanism emerged: Proof of Stake (PoS). In a PoS network, users don’t have to actively compete with each other to unlock rewards. All they have to do is stake their assets, that is to say, lock them in a contract as collateral. The consensus mechanism then randomly selects the next user to create a token - the more tokens they have staked, the likelier they are to be selected.
Users staking their tokens are referred to as validators, and they must abide by some rules. In Ethereum, one has to stake at least 32 ETH to act as an independent validator - but smaller holders can join validation pools to take part in validation operations. If the validator behaves in bad faith (by trying to validate improper transactions, for example), the staked tokens can be burned, i.e. destroyed.
Ethereum’s Transition
When it was launched in 2015, Ethereum relied on a Proof of Work mechanism. But Vitalik Buterin, one of the network’s co-founders, had a long-lasting interest in Proof of Stake. After years of testing, Ethereum finally switched to Proof of Stake in September 2022, in an event known as “the Merge”.
And it turns out that this mechanism change had major consequences on Ethereum’s energy consumption. Following the Merge, the network cut its electricity consumption by more than 99,988%, and its carbon footprint by roughly the same figure. That’s because PoS uses ETH instead of the energy to secure the network.
As a result, the Crypto Carbon Ratings Institute estimates that Ethereum’s 2022 energy consumption was approximately ~0.0026 TWh. As a comparison point, global data centres consume 200 TWh/year, and even Netflix burns through 0.451 TWh/year.
Proof of Work Is Here to Stay
Many other prominent blockchains now rely on Proof of Stake, as it’s a flexible, low-energy and reliable way to secure and maintain the network. Among the top tier crypto-using PoS, we can mention: Polkadot, Cardano, Solana, Cosmos, Matic, Algorand, and Tezos.
So is Proof of Work an outdated relic? Far from it. We expect Proof of Work to keep playing an important role in the crypto ecosystem, for several reasons.
Pow Provides Unparalleled Security
PoW was specifically designed to prioritise security. It mandates node operators to actively participate in the system by investing in hardware and energy resources to solve cryptographic puzzles. This resource-intensive approach makes it extremely challenging for attackers to manipulate the network. Consequently, PoW is highly resistant to 51% attacks, where a malicious entity gains control of a majority of the network and exploits it for nefarious purposes.
Pow Is More Decentralised
Compared to PoS, PoW offers a greater degree of decentralisation. In PoS systems, validators often need to lock substantial amounts of cryptocurrency as collateral. In contrast, PoW allows anyone with hardware and energy access to participate in mining, even on a small scale. This inclusive approach fosters a highly democratic and decentralised network.
Pow, for Fairness and Meritocracy
PoW is widely regarded as a fairer consensus mechanism than PoS as it rewards miners based on their computational power and contribution to the network. In PoS, validators are rewarded based on the amount of cryptocurrency they hold, which can potentially lead to centralization in the hands of a few large holders. By basing rewards on computational resources, PoW promotes a meritocratic system that incentivizes active participation and innovation.
Conclusion: Crypto’s Energy Consumption, Explained
That’s it, you’ve reached the end of our deep dive into crypto’s energy consumption and environmental footprint! This is a complex topic, and we hope you have now formed your own opinion on it.
We’ll share three main takeaways as a cheat sheet:
Crypto’s carbon footprint is trivial compared to what it can offer.
Miners are relying on renewable resources - and could even contribute to reducing carbon emissions
New mechanisms such as Proof of Stake considerably lower crypto’s energy consumption.
And remember, anytime you come across figures: do your own research.
