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J. Sedlmeir et al.: The Energy Consumption of Blockchain Technology, Bus Inf Syst Eng 62(6):599–608 (2020) 601 It is essential to note that the high energy consumption of PoW blockchains is neither the result of inefficient algorithms nor of outdated hardware. Strikingly, such blockchains are ‘‘energy-intensive by design’’. It is their high energy consumption that protects PoW blockchains from attacks: Depending on the scenario, an attacker must bear at least 25 to 50% of the total computing power that participating miners use for mining – and, thus, the same proportion of the total energy consumption (under the assumption of equal hardware) – to be able to successfully manipulate or control the system (Eyal and Sirer 2014). Consequently, the more valuable a PoW cryptocurrency is, the better it is protected against attacks, confirming that PoW is, indeed, a thoughtful design. 2.2 General Estimates Starting with the work of O’Dwyer and Malone (2014), researchers have analyzed the energy consumption caused by Bitcoin in numerous scientific publications over recent years (Stoll et al. 2019). However, results regarding the energy consumption of PoW cryptocurrencies and block- chain technology in general are rare. Determining the exact value for the energy consumption of a multitude of open, distributed networks is a hard task because the precise number of participants, the properties of their hardware, and the effort which they put into mining are unknown. Fortunately, however, one can obtain good estimates for a lower and an upper bound of the energy consumption of any PoW blockchain by following Vranken (2017) and Krause and Tolaymat (2018): Since both the difficulty of the cryptographic puzzles and the frequency at which solutions are found are easily observable, one can calculate the expected value of the minimum frequency of calcula- tions (‘‘hash-rate’’) needed to solve the puzzles as often as observed. This gives a lower bound of the energy con- sumption of an arbitrary PoW blockchain: (ASICS) exist, i.e., chips that are highly optimized for computing hash values and, thus, for solving the puzzles. On the other hand, Ethereum was designed to prevent the use of highly specific mining hardware, so general-purpose GPUs can be used for mining. Note that (1) does not depend on any other parameters and, therefore, gives a very reliable lower bound. Entering the current numbers – retrieved from Coinmarketcap (2020) and Coinswitch (2019) on 2020-02-05 – into (1) yields a lower bound for power consumption of 6.8 GW, which equates to an annual energy requirement of at least 60 TWh. Alternatively, one could, of course, also integrate the time-dependent lower bound over the period under consideration. One can also determine an upper bound for the energy requirement of the mining process for a PoW blockchain, assuming honest and rational miners whose utility from mining is solely financial profit: Participation in the mining process is only profitable as long as the expected revenue from mining is higher than the associated costs: mining rewards þ transaction fees 1⁄4 tot. mining revenue tot. mining costs tot. energy consumption min.electricity price. A few easy manipulations yield the desired upper bound: ð2Þ : As hardware costs represent a substantial part of the costs side, and electricity prices vary significantly around the globe, we cannot assume that the upper bound is very tight. The block reward, i.e., the number of cryptocurrency coins one receives for solving a puzzle, the price of a coin, and current transaction fees are, again, publicly observable for every PoW cryptocurrency, meaning that only sensitive number which has to be estimated is the minimum elec- tricity price. De Vries (2018), for example, argues that 0:05 USD is a reasonable lower bound for electricity prices. kWh This gives an upper bound of approximately 125 TWh per year for the energy consumption of Bitcoin, using data from Coinmarketcap (2020) for 2020-02-05. We repeated the calculation of the lower bound (1) and the upper bound (2) for the remaining 4 PoW cryptocur- rencies with market capitalization of at least 1 bil- lion USD. Figure 1 displays the resultant ranges for their respective energy consumption: We see that the lower and upper bounds are, in general, quite close and, therefore, represent a meaningful estimate of the actual energy consumption for each of the 5 major PoW cryptocurrencies. A manifestation of this fact could total power consumption total hash rate min energy per hash: ð1Þ This estimate indicates the lower bound, reflecting the likelihood that more solutions are found than disseminated, that further computations – in addition to mining – are being carried out, and that not every miner has the most energy-efficient hardware. Both the current hash rate of a public blockchain and the energy efficiency of the most efficient mining hardware can easily be retrieved from online material. However, one must be aware that mining hardware is in general block- chain-dependent because the algorithms used for hashing can differ. For example, Bitcoin uses SHA256, for which very efficient application-specific integrated circuits total power consumption block reward coin price þ transaction fees avg. blocktime min. electricity price 123PDF Image | The Energy Consumption of Blockchain Technology
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