Your concern about the amount of power cryptocurrency mining operations consumes is commendable. We’re going to need more of that concern in the next pivotal decades as we wrestle with the true environmental cost of our lifestyle as a collective.
This keyword here is true.
What can we know that is true about the carbon footprint of our present financial infrastructure? What is the true footprint of the vaults, the trucks, the security systems, the massive data centers, and the military effort deployed to secure our monetary system and maintain the status quo?
The truth is that these environmental costs are unaccounted for and hidden. They are externalities that don’t factor into the corporate bottom line.
There is transparency in Bitcoin, however.
That’s why it is easy to come across the widely circulated articles declaring that the total power consumption of cryptocurrency mining operations is equivalent to the power consumed by countries like Ireland or the Czech Republic. And as a consequence concerned readers walk away believing that greedy miners are putting more burden on our planetary resources in a frenzy of get-rich-quick speculative opportunism.
But the maths is wrong. Or rather, it is being framed the wrong way.
The extrapolation of Bitcoin energy consumption goes like this. We are using this much energy for Bitcoin, and it has these many transactions.
Divide the amount of energy by the number of transactions. Then assume that if Bitcoin grows by this much, we will eventually use X amount of power.
The flaw here is that the amount of energy used has to be considered per block, not per transaction, because the number of transactions it takes to create a block varies.
In an excellent piece written by Dan Held for Picks & Shovels, he further explains that cost per transaction isn’t the correct metric.
“The average cost per transaction isn’t an adequate metric for measuring the efficiency of Bitcoin’s PoW, it should be defined in terms of the securing of economic history. The energy spend secures the stock of bitcoin, and that percentage is going down over time as inflation decreases. A Bitcoin “accumulates” the energy associated with all the blocks mined since its creation.”
He goes on to say that the true metric is the return on investment on energy consumption, and the article proposes that the Proof-of-Work (POW) algorithm is in fact quite energy efficient.
You see the POW algorithm is often called out as the culprit for all this ‘wasteful’ energy consumption. Naysayers even add that the algorithm doesn’t do anything useful.
But securing a network, economic value, and preserving trustworthiness are more or less what a bank does. And the bank sells this to you as a service.
The blockchain is disruptive innovation because it does all of that for you. That’s why it’s called ‘being your own bank.’ How much of a reduction in carbon footprint do you think that gives us?
Let’s also consider that in the entirety of the cryptosphere the POW algorithm is not the only algorithm on the playing field.
Modern crypto projects are quickly moving away from POW and on to things like Proof of Stake, Byzantine Fault Tolerance and Directed Acyclic Graphs. They aren’t relying on miners burning computational power on a brute-force attempt at solving a puzzle for digital rewards.
The blockchain community is thinking broader than that.