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J. Sedlmeir et al.: The Energy Consumption of Blockchain Technology, Bus Inf Syst Eng 62(6):599–608 (2020) 603 mining hardware market, resulting from the hype around cryptocurrencies, has dramatically increased the energy efficiency of mining hardware in the last decade. In the long term, it is to be expected that even with ground- breaking innovation in the energy efficiency of mining hardware, Bitcoin’s and other PoW blockchains’ energy requirements will remain at the previous level unless the remaining economic quantities on the right-hand side of (2) change considerably. 2.3 Closing Notes on the Energy Consumption of PoW Blockchains In summary, our lower and upper bounds represent dif- ferent approaches and use different quantities that have to be estimated. Yet, these bounds are very consistent in the case of all of the cryptocurrencies we investigated. For example, we determined electricity consumption to be between 60 and 125 TWh per year for Bitcoin. This is in the range of the annual electricity consumption of countries such as Austria (75 GWh) and Norway (125 GWh). However, as cryptocurrencies currently process only few transactions per second, the theoretical limit is typically in the low two- or three-digit range, e.g., approx. 15 for Ethereum and Bitcoin and 100 for Bitcoin Cash. This is primarily determined by the parameters ’average block time’, ’minimum size of transactions’, and ’maximum block size’ (Georgiadis 2019). Accordingly, a single transaction currently requires enough electrical energy to meet the needs of the average size German household for weeks, or even months. By contrast, traditional payment systems process, on average, thousands of transactions per second, and as many as tens of thousands at peak times. In their publication in ‘‘Nature Climate Change’’, Mora et al. (2018) extrapolate the energy consumption of a single Bitcoin transaction to the order of magnitude required for handling payments on a global scale. They claim that if Bitcoin were to handle the number of transactions required by a worldwide payment system, the associated emissions alone would lead to a global temperature increase of 2 °C in the coming decades. However – as has already been pointed out in a critical ’Matters Arising’ response by Dittmar and Praktiknjo (2019) – when increasing the blocksize and, therefore, the throughput, according to our previous arguments, the energy consumption associated with mining would remain constant, and the energy con- sumption associated with the remaining tasks would still be negligible. This means that, overall, there would be no noticeable increase in total energy consumption. This argument is, however, based on the assumption that the economic quantities from the estimate of the upper bound (2), namely, the prices for electricity and the respective cryptocurrency, remain constant. In practice, however, the blocks cannot be enlarged at will. While in Bitcoin Cash, for example, the blocksize has been increased by a factor of 8 (compared to Bitcoin) without any problems, a significantly larger block size is currently not practicable. This is because, the larger a block is, the longer it takes for it to be propagated by the worldwide blockchain network. This can have a negative effect for latency (the time it takes to distribute a new block to all nodes) and, also, security: More solutions to the puzzles are likely to be found as a certain block propagates through the network, splitting the honest miners’ resources and, therefore, leaving the network more vulnerable to attack. Moreover, not every household can afford a high bandwidth and large hardware storage, so higher require- ments can also lead to a lower degree of decentralization. This trade-off has already been discussed, e.g., in Bitcoin Magazine (2018). If, however, storage capacities (hard disks) and network speed continue to improve worldwide, a considerable increase in block sizes might be conceivable in the future. This would enable higher transaction rates without a noticeable increase in energy consumption. Finally, for most PoW blockchains, the block reward is not constant, but periodically halved, typically, every few years. Since mining fees are currently negligible compared to block rewards, the upper bound (2) is proportional to the electricity price and block reward. Hence, if the prices for crypto-coins and electricity prices remain at the same level, one could even expect that in the long run, the energy consumption of PoW blockchains will also halve in each of these periods, until the rewards from mining are compa- rable to the total transaction fees. We conclude that, although the energy consumption of PoW blockchains is arguably enormous in relation to their technical performance, it does not represent an essential threat to the climate, even if significantly more transactions are processed in the future. Moreover, since the area of application of most blockchains – and, in particular, the major cryptocurrencies – is often far beyond payments, plenty of opportunities for new ecosystems and business models arise. An evaluation should therefore not only compare performance metrics and energy consumption, but also take into account the unique opportunities offered by this technology. 3 Alternative Consensus Mechanisms Fortunately, the PoW consensus mechanism, which – as already described – was designed to be energy-intensive, is not the only way to achieve consensus in a distributed system. The probably best-known alternative for the per- missionless systems required for cryptocurrencies and other open decentralized applications is the so-called 123PDF Image | The Energy Consumption of Blockchain Technology
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