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600 J. Sedlmeir et al.: The Energy Consumption of Blockchain Technology, Bus Inf Syst Eng 62(6):599–608 (2020) therefore inhibit or delay the widespread adoption of blockchain technology (Beck et al. 2018). This article challenges the common prejudices regarding the energy consumption of the supposedly homogeneous blockchain technology by providing a detailed analysis of current scientific knowledge. It, thereby, addresses the energy consumption of IS, in general a subject for which BISE traditionally takes responsibility (Buhl and Jetter 2009; Schmidt et al. 2009). In particular, it also addresses the need for a detailed investigation into the energy con- sumption of blockchain technology, as pointed out in Beck et al. (2017). In Sect. 2, we first provide some technical background for Proof-of-Work (PoW) blockchains and determine the level of their energy consumption. Using these estimates, we illustrate that today’s PoW cryptocur- rencies do, indeed, consume an amount of energy which may be regarded as disproportionate when compared to the currencies’ actual utility. However, we also argue that the energy consumption associated with a widespread uptake of PoW cryptocurrencies is not likely to become a major threat to the climate in the future. In Sect. 3, we put these results into perspective by presenting blockchains with alternative consensus mechanisms. We illustrate that these kinds of blockchain technology already consume several orders of magnitude less energy than the first generation PoW blockchains and that these blockchains, thus, largely mitigate the energy problem. However, we argue that, in addition to consensus, the redundancy underlying all types of blockchain technology can make blockchain-based IT solutions considerably more energy-intensive than a non- blockchain, centralized alternative. In Sect. 4, we discuss this issue and also give an overview of methods and con- cepts which could further decrease the energy consumption of blockchain technology. In Sect. 5, we illustrate our findings by a first rough comparison of the energy con- sumption of some non-blockchain, centralized systems to that of basic blockchain architectures. We conclude with with an outlook and suggested topics for further research in Sect. 6. 2 Proof-of-Work Blockchains 2.1 Technological Basics Bitcoin, the first application built on blockchain technol- ogy, is a decentralized payment system in which all par- ticipating computers (‘‘nodes’’) store a copy – or, more precisely, a replica, since there is no distinguished master – of the associated ledger. A ledger is commonly defined as a collection of accounts, stating one’s current rights of ownership of a particular asset – in the case of Bitcoin, units of the eponymous cryptocurrency. The underlying technology, blockchain, provides a means to store infor- mation chronologically and redundantly on a decentralized database, and an agreement process through which the nodes synchronize and modify their global state (‘‘operate transactions’’) (Crosby et al. 2016). It is, therefore, not exclusively suitable for use with cryptocurrencies, but can be applied to many processes in which the involvement of an intermediary such as a bank, a notary, or any (digital) platform owner is not desirable. Blockchains, in general, achieve this synchronization by linking transactions to form batches (‘‘blocks’’) and adding these, sequentially, to the existing linear data structure (‘‘chain’’). Utilizing Merkle trees and hash-pointers, this data structure is highly tamper-sensitive, making retro- spective manipulations easy to detect. Agreement about which new blocks to append is reached using a so-called consensus mechanism. Anyone can run a node for the common cryptocurrencies and participate in the consensus mechanism of their underlying blockchains using public key cryptography and hence without any form of regis- tration. Consequently, blockchains underlying such open systems, which allow for unrestricted access and partici- pation, are termed permissionless. Since, on a permis- sionless blockchain, the inclusion of a distinct entity to provide accounts and passwords is not viable, authentica- tion based on a public key infrastructure is highly suitable. For such blockchains, a simple voting-based agreement process based on ‘‘one man – one vote’’ is not secure, since a potential attacker could simply create multiple accounts to gain a majority and take control of the system; this is called a Sybil attack (Douceur 2002). Bitcoin’s key innovation was to provide a suit- able consensus mechanism for the use in this scenario. Specifically, Bitcoin combined several well-known con- cepts from cryptography to form the so-called PoW. This refers to the right to create a new block from a subset of queued transactions when one finds a solution to a cryp- tographic, computationally intensive puzzle. The process of searching for a solution is called ‘‘mining’’. This results in coupling the voting weight to a scarce resource – computing power and thus energy – and hence prevents Sybil attacks. The mining process is economically incentivized in that participants are rewarded for every valid block that is found and disseminated. The reward typically consists of a certain amount of the associated cryptocurrency and the fees for the associated transac- tions. The value of the former is proportional to the cryptocurrency’s market price, so the success of cryp- tocurrencies on financial markets in the last years has provided a very strong incentive to participate in mining. In turn, this has led to an enormous energy consumption associated with the underlying PoW blockchains. 123PDF Image | The Energy Consumption of Blockchain Technology
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