In our recent post “What’s the Difference Between Public and Private Blockchains?,” we noted that critics often lament the massive amount of energy consumed when miners validate new blocks of data on public blockchains. Most public blockchains currently operate on a PoW or Proof of Work validation structure, but researchers argue that transitioning to PoS or Proof of Stake could significantly reduce energy consumption. For example, Cardano, Algorand, Avalanche and Polkadot already utilize a Proof of Stake consensus mechanism and are far more energy efficient than their PoW counterparts like Bitcoin. Writing for the Ethereum Foundation blog, Eth 2.0 researcher Carl Beekhuizen notes that the Ethereum blockchain is currently transitioning from PoW to PoS. Beekhuizen estimates a “reduction of at least 99.95% in total energy use” after Ethereum transitions from a competitive validation structure to a randomized validation structure. Already, studies like this 2022 report from the Crypto Carbon Ratings Institute (CCRI) have shown how much lower the electricity consumption and carbon footprint of PoS consensus mechanisms are when compared to PoW consensus mechanisms. In this post, we take a look at how much energy is consumed by cryptocurrency transactions and other public blockchain operations. We also explain how PoS makes validating new blocks of data more energy efficient.
Terms to Know
The following article details the estimated electricity usage, energy consumption and carbon footprint of both PoS and PoW consensus mechanisms. To better understand these mechanisms, we define a few terms related to blockchain technology below.
For readers who are new to the technology, blockchain is a type of distributed ledger through which information can be managed securely and immutably. The term “blockchain” refers to the way in which data is processed and recorded. Each “block” of data must be verified by a node before it can be added to the “chain.”
Together, these nodes make up what we call a “blockchain network.” According to Cointelegraph, “a blockchain network is a technical infrastructure that allows applications to access ledger and smart contract services.”
This decentralized network of nodes makes transactions and other operations recorded on public blockchains more secure, more consistent and less expensive. In addition to public blockchain networks, there are also private, permissioned and consortium networks. Consortium networks are a type of permissioned network.
Readers can learn all about the differences between private, public and permissioned blockchain networks in this post.
In certain consensus algorithms like the Proof of Burn or Proof of Stake system, miners must “stake” coins in order to become validators. But what is staking? Writing for The Motley Fool in a May 2022 article, Lyle Daly explains that “staking is the way many cryptocurrencies verify their transactions, and it allows participants to earn rewards on their holdings.”
By staking coins, miners essentially place a certain amount of crypto in “escrow” until the cryptographic puzzle that allows one to add new data to the blockchain is solved. Typically, miners who stake many coins are more likely to be chosen as a validator, but this is not always the case.
As we explain in our recent post “What’s the Difference Between Public and Private Blockchains?,” permissioned networks share characteristics of both public and private blockchain networks. How heavily a permissioned blockchain leans towards public or private depends on its intended use.
In general, permissioned blockchains write access for designated permissions to individual participants — allowing them to perform some but not all activities and view some but not all data. In our post, we note that “many experts watching blockchain technology evolve believe permissioned blockchains will be used most commonly in the future — outpacing adoption of either private or public blockchains.”
The term “permissionless” is often used interchangeably with “public” when referring to blockchain networks. There is no difference between a public and permissionless blockchain. Regardless of which term is used, both allow anyone to participate in the system without restrictions.
Writing for Blockchain-Council.org, Ayushi Abrol explains that nodes are “network stakeholders and their devices that are authorized to keep track of the distributed ledger and serve as communication hubs for various network tasks.” Their job is to validate new blocks of data and add these to the chain. Each node — which could be either a running node or a masternode — has an identical copy of the ledger.
We detail in our post “What’s the Difference Between Public and Private Blockchains?” that when critics of the distributed ledger technology express concern over its energy usage and environmental impact, they are usually referring to the work done by these nodes. As one might imagine, the more nodes in a network, the more electricity is consumed. Of course, the location of these nodes and the type of power they use to validate transactions directly impacts that network’s carbon footprint.
Depending on the type of consensus algorithm, the network participants who verify transactions and add new blocks to a chain are called either “miners” or “validators.” Some are also called “delegates.” In return for solving complex mathematical problems and validating new blocks on a public chain, miners receive coin as a reward.
In his article “Cryptocurrency goes green: Could ‘proof of stake’ offer a solution to energy concerns?” for NBC News, Ezra Kaplan defines “mining rigs” as the “specialized computers [that] work hard to solve…mathematical equations” in order to verify transactions on a blockchain. Some mining rigs are very complex and specific to a certain network, while others are fairly simple. Similarly, some are incredibly energy-intensive while others are more efficient.
Consensus mechanisms — also called consensus protocols or consensus algorithms — describe the ways in which miners verify transactions and add new blocks of data to a chain. In his article “Consensus Mechanism (Cryptocurrency)” for Investopedia, Jake Frankenfield explains. According to Frankenfield, “a consensus mechanism is a fault-tolerant mechanism that is used in computer and blockchain systems to achieve the necessary agreement on a single data value or a single state of the network among distributed processes or multi-agent systems, such as with cryptocurrencies.” Put simply, a consensus mechanism is a methodology used to achieve distributed consensus across a blockchain network.
The two most common consensus mechanisms utilized by public blockchains to validate transactions are Proof of Stake PoS and Proof of Work PoW. However, there are other consensus mechanisms beyond the PoW consensus mechanism and PoS consensus mechanism. These include Proof-of-Authority, Proof-of-History, Proof-of-Capacity, Proof-of-Elapsed-Time, Proof-of-Activity and Proof-of-Burn. There is also Delegated Proof-of-Stake — sometimes called “weighted” or “voted” PoS.
Proof of Work
The PoW consensus mechanism was — and still is — used by the Bitcoin blockchain. Though many public blockchains are shifting from PoW to PoS, PoW remains the most commonly used consensus mechanism in 2022. According to E. Napoletano and Aaron Broverman in their article “Proof of Work Explained” for Forbes Advisor, “approximately 64% of the total market capitalization of the universe of cryptocurrencies use proof of work for validation.”
The Proof of Work consensus algorithm encourages miners to compete against each other in order to solve complex mathematical problems and generate consensus regarding the integrity of data that will be added to the blockchain. Of the miners competing to solve the problem first, he or she with the most computing power usually gets the correct answer and receives “coin” as a block reward for transaction verification.
Though incredibly secure, the Proof of Work consensus mechanism leaves a lot to be desired in terms of energy efficiency. A shocking amount of computing power and specific, complex hardware is now required to solve these problems, but Napoletano and Broverman note that in 2009 when Bitcoin was first introduced, “you could mine one Bitcoin using a regular desktop computer and a negligible amount of electricity.” Today, mining a single Bitcoin requires electricity consumption comparable to “what a standard American home would use in nine years.” To reduce the carbon footprint of public blockchains, many are turning to Proof of Stake.
Proof of Stake
Used by public blockchains like Cardano, Proof of Stake is the second most popular consensus algorithm and one of the most energy efficient. Instead of many miners competing against each other to solve problems and verify blocks, validators are randomly selected to perform a similar function.
Each participant must lock up or “stake” a certain number of coins until enough validators — usually two-thirds — agree and a new block is confirmed. This is kind of like placing funds in escrow until all parties agree that terms of a contract have been met. If a minor were to validate fraudulent transactions, he or she would lose the coins they had staked in order to participate. They could also be banned from participating in that particular PoS network in the future.
While this randomized method uses standardized, widely available equipment and less computational power than PoW, there are some downsides to PoS. In his article “Blockchain Consensus Algorithms: Different Types and How They Work” for SoFi Learn, Brian Nibley explains. Nibley writes that PoS “favors the wealthiest token holders (who can stake more tokens) and trends toward centralization.” Others complain that PoS can encourage participants to hoard their coins instead of spending them. Still, Proof of Stake mechanisms — like PoW algorithms — are designed to prevent a 51% attack from occurring.
Proof of Stake is also younger and more complex than PoW. Because Proof of Stake consensus mechanisms have not been used as widely as Proof of Work mechanisms, some argue that they are not as robust or secure.
Delegated Proof of Stake
Sometimes called “voting” or “weighted” PoS, DPoS or Delegated Proof of Stake is an iteration of the original Proof of Stake consensus mechanism. DPoS seeks to solve some of the complaints network participants have raised about traditional PoS systems. Chief among these complaints is the claim that PoS leans toward creating a central authority by empowering validators with the most coin to put at stake.
According to the post “What Are Proof of Stake and Delegated Proof of Stake?” from Gemini’s online DeFi encyclopedia Cryptopedia, DPoS “features a voting and delegation mechanism that makes the process more democratic.” By using a Delegated Proof of Stake mechanism, network participants “vote on delegates by pooling [their] tokens into a staking pool and linking those to a particular delegate.” After validating a new block, the winning delegate is awarded transaction fees that they share with the users who pooled their tokens to elect said delegate.
DPoS still favors participants with more coins — but in a less direct way. Participants who elected the winning delegate receive a share of transaction fees tied to their specific stake. Those who stake more coins receive a larger share of the transaction fees.
Proof of Authority
Like Proof of Activity, Capacity, Elapsed Time, Burn and History, Proof of Authority is a consensus mechanism sometimes used to validate transactions for a blockchain network. It limits the number of validators who are allowed to participate in verifying transactions. Use of PoA is relatively rare — but increasing — when compared to use of PoS, DPoS and PoW.
According to the Cryptopedia article “Blockchain Consensus Mechanisms Beyond PoW and PoS,” PoA is a “reputation-based” consensus algorithm that shares some key elements with DPoS — chiefly its democratic structure. Like PoS, PoA miners are called “validators.” These validators act like DPoS delegates in that they “have been selected and approved by other network participants to act as moderators of the system.”
Like traditional PoS, PoA validators are usually those with a significant stake in the system. They are often “institutional investors or other strategic partners within the blockchain ecosystem that have a vested interest in the long-term success of the network and are willing to disclose their identities for the sake of accountability.” Though this can boost trust in and security of the network, it also makes the blockchain more “centralized” and thus better suited to permissioned or private networks.
Proof of Activity
Also abbreviated as PoA, Proof of Activity is a consensus mechanism that combines elements of PoW and PoS. PoA mechanisms initially function like PoW algorithms and eventually function like PoS algorithms. Writing for Investopedia, Shobhit Seth explains that “the mining process begins the same way as in a PoW process, with various miners trying to outpace each other with higher computing power to find a new block.”
After mining a new block, the consensus PoW mechanism evolves into a PoS mechanism. During this stage of the validation process, “a new, random group of validators from the blockchain network is selected…to validate or sign the new block.” As in a traditional PoS system, validators with more coins are more likely to be chosen. As one might imagine, PoA draws criticism for energy consumption comparable to that of a PoW mechanism.
Proof of Capacity
Like other consensus algorithms, Proof of Capacity or PoC is similar to the PoW mechanism. However, Proof of Capacity allows miners to use their hard drive space rather than using staked coins or their device’s computational power. Because of this, PoC is considered even more energy efficient than PoS.
Proof of Elapsed Time
Originally created by American tech company Intel, the Proof of Elapsed Time or PoET algorithm is used by permissioned blockchains and is thus not as relevant to this article as the other mechanisms described above. Validators in a PoET system are chosen randomly, making this mechanism one of the most efficient and democratic.
Proof of History
In his article “Consensus Mechanism (Cryptocurrency)” for Investopedia, Jake Frankenfield writes that Proof of History (PoH) is “similar to Proof of Elapsed Time (PoET).” This consensus algorithm was “developed by the Solana Project…[to encode] the passage of time itself cryptographically.” According to Frankenfield, this helps “achieve consensus without expending many resources.”
Proof of Burn
Like PoC, Proof of Burn is often compared to PoW. Also like Proof of Capacity, Proof of Burn is far less wasteful than the Proof of Work system. Developed by Iain Stewart, the Proof of Burn mechanism allows miners or validators to “burn” tokens.
According to a recent article published by CNBC TV-18, burning a coin or token means that that coin or token “has been permanently pulled out of circulation…lost forever.” In Proof of Burn, miners stake coins that — instead of being placed in “escrow” like the Proof of Stake system — are “sent to a dead wallet.”
Miners who burn their coins are more likely to become validators. If they do become validators, they receive “newly minted coins” for each new block they add to the chain.
How Much Energy Do Public Blockchain Networks Consume?
Critics of blockchain technology often point to the massive energy usage of public blockchain platforms like the those which support Bitcoin and the current version of Ethereum. With thousands of nodes constantly competing to validate new blocks of data, public blockchains have incredible computing power and energy needs. According to Stack Exchange, the Ethereum network’s computing power is nearly “58 times bigger than the current world faster supercomputer Fugaku.” In 2021, Ethereum had over 9,000 active nodes and over 140,000 validators.
Blockchain’s original use case — supporting cryptocurrency exchanges and other transactions — is shockingly energy-intensive. According to a recent report from Fortune, “the volume of energy” required to power a single Bitcoin transaction could “‘power the typical American home for six weeks.’” A study published by The New York Times last September found that “the process of creating Bitcoin to spend or trade consumes around 91 terawatt-hours of electricity annually.”
This is more than the entire energy consumption of Finland – “a nation of about 5.5 million.” Writing for The New York Times in their article “Bitcoin Uses More Electricity Than Many Countries. How Is That Possible?,” Jon Huang, Claire O’Neill and Hiroko Tabuchi note that Bitcoin’s overall energy usage “is close to half-a-percent of all the electricity consumed in the world” and that this usage “has increased about tenfold in just the past five years.” As of May 2021, Bitcoin’s energy consumption was estimated at 0.55% of global electricity usage.
The carbon footprint of public blockchains like Bitcoin is also massive. Writing for DownToEarth.org in her article “As cryptocurrency becomes mainstream, its carbon footprint can’t be ignored,” Robin Sher notes that “the carbon footprint of Bitcoin, the world’s largest cryptocurrency, is equivalent to that of New Zealand, with both emitting nearly 37 megatons of carbon dioxide into the atmosphere every year.”
Why Are Public Blockchains So Energy Intensive?
The number, location and hardware of nodes in public blockchains that use PoW consensus mechanisms all contribute to their immense energy consumption and electricity usage. Determining the actual climate impact of public blockchains like Bitcoin that rely on PoW consensus has been somewhat difficult. This is because the type of energy used contributes to a network’s overall carbon footprint.
What type of energy is used by miners depends on where their nodes are located. As Nic Carter explains in his May 2021 article “How Much Energy Does Bitcoin Actually Consume?” for Harvard Business Review, it is important to remember that “energy consumption is not equivalent to carbon emissions.”
For example, in an article for Reuters, Alexander Smith writes that “Chinese [Bitcoin] miners account for about 70% of production [according to] data from the University of Cambridge’s Centre for Alternative Finance.” These miners typically “use renewable energy – mostly hydropower – during the rainy summer months, but fossil fuels – primarily coal – for the rest of the year.” Chinese participation has changed in recent months due new legislation and stricter enforcement of existing laws. Around the world, fossil fuels continue to power approximately 60% of all Bitcoin mining according to Courtney Lindwall in her February 2022 article “Crypto Has a Climate Problem” for NRDC.org.
To reduce reliance on fossil fuels when mining Bitcoin and other cryptocurrencies supported by public blockchain networks, certain miners and tech companies have relocated their operations. Writing for Bloomberg in November 2021, Olga Kharif, Will Mathis and Josh Saul note that “some miners have located their computers in places such as Iceland or Sweden, with abundant geothermal or hydropower, and others have bought carbon credits to offset their emissions.”
Consensus Mechanisms and Electricity Consumption
Still, Carter writes that “Bitcoin’s energy consumption is relatively easy to estimate” and that the “vast majority of Bitcoin’s energy consumption happens during the mining process” because of its PoW consensus mechanism. As detailed above, the consensus mechanism utilized by each network contributes heavily to that network’s electricity usage and — in some cases — to its carbon footprint.
With Proof of Work, many miners compete against each other — expending massive amounts of energy — to win the challenge. The miner with the most computing power tends to solve the required puzzle first, which only encourages miners to invest in increasingly complex, energy-intensive equipment. In fact, it is this investment — plus the eventual coin reward — that motivates miners to verify transactions accurately. Despite the amount of energy used and electricity expended through the PoW mechanism, 64% of today’s total crypto market capitalization uses this algorithm.
How Proof of Stake Makes Verifying Transactions More Energy Efficient
Over the last few years, industry leaders have suggested a shift from PoW to PoS. In their April 2022 paper “The Energy Footprint of Blockchain Consensus Mechanisms Beyond Proof-of-Work” – which was completed with support from the University College London Centre for Blockchain Technologies and the Google Cloud Research Grant program – Moritz Platt et al. explain. They write that “the consumption of Bitcoin – overall and per-transaction – is at least three orders of magnitude higher than that of the highest consuming PoS system even under the most favorable assumptions.”
To put it bluntly, Platt and colleagues note that “the energy consumption of PoW systems, especially Bitcoin, is excessive.” Instead of many miners competing against each other to solve problems and verify blocks in a PoW system, validators in a PoS system are randomly selected to perform a similar function based on how much coin they “stake.”
The number of validators, allocation of authority and type of hardware used to verify transactions all make PoS more energy efficient than PoW. As noted above, the relatively new iteration of PoS called DPoS could be even more efficient.
How PoS Energy Consumption and Electricity Usage Compares to PoW
To better understand the energy usage of PoS systems versus PoW systems, we turn to the 2022 report “Energy Efficiency and Carbon Footprint of PoS Blockchain Protocols” from the Crypto Carbon Ratings Institute (CCRI). This report examined six different PoS systems alongside popular PoW systems like Bitcoin.
According to the researchers at CCRI, there is some variation in electricity consumption and energy usage between PoS systems because “different PoS systems rely on varying fundamentals regarding the hardware requirements, programming language, network size, transaction throughput, transaction complexity, and more.” Still, the CCRI researchers note that “the overall differences between PoS networks are minor” — especially when compared to more gluttonous Proof of Work systems.
This study found that “the yearly electricity consumption of the Proof of Stake networks from 70 MWh for Polkadot to 1,967 MWh for Solana.” Carbon footprints for PoS protocol networks compared during this study range from “33 and 934 tonnes of CO2e annually, respectively.”
When comparing PoS systems, electricity consumption per transaction ranges from range for the electricity consumption per transaction goes from “0.166 watt hours for Solana up to 51.59 watt hours for Cardano.” Bitcoin consumes approximately 722.24 kWh or 1,722,240 watt hours per transaction. Referencing 2021 data from the US Energy Information Administration and the CBECI, the CCRI researchers note that “PoS networks consume less than 0.001 % of the Bitcoin network.”
As such, researchers from the CCRI and other institutions argue that a shift to PoS — which Ethereum is currently working on — could significantly reduce the energy usage and carbon footprint of public blockchain networks like Bitcoin that are currently operating on PoW. Until this transition occurs throughout the industry, other options include using renewable resources and participating in carbon offset programs.