How scale enables proof of work energy efficiency – The Next

Blockchain Basics: How Scale Enables Proof of Work Energy Efficiency

The world is becoming increasingly vigilant about fighting climate change by significantly reducing the carbon footprint of both minor and major contributors to greenhouse gas emissions. In fact, President Joe Biden of the United States continues to make the climate agenda one of the focal points of his policy, and has proclaimed the goal of becoming a carbon neutral country by the year 2050.

A few years ago, Tesla CEO and X owner Elon Musk pointed out the fact that Bitcoin, the most popular and expensive cryptocurrency, uses an insane amount of electricity, leaving an extremely high carbon footprint. This is the beginning of governments and other organizations investigating the energy consumption of not only Bitcoin, but all other cryptos.

“We are concerned about the rapidly increasing use of fossil fuels in Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel. Cryptocurrency is a great idea on many levels and we believe it has a promising future, but it cannot come at a huge cost to the environment,” Musk wrote in his tweet that opened a can of worms.

As a result, attention has shifted to the Proof-of-Work mechanism used by blockchains, which causes the high electricity consumption of Bitcoin mining. Blockchain is the technological foundation of Bitcoin and other cryptos. Although its first functional implementation is Bitcoin, blockchain can also be used to significantly improve digital systems and processes of businesses from different industries.

Although Musk was right to expose this kind of high carbon footprint that is detrimental to all efforts to combat climate change, his statement led to a major misunderstanding that hindered blockchain adoption. And until now, this misconception persists for many who have accepted Musk’s statement at face value without digging a little deeper into its truth.

Because the truth is, neither Bitcoin nor Proof-of-Work is energy inefficient and unsustainable. However, Musk’s statement was not completely false either. To fully explain this, it is important to first understand some basic principles of blockchain.

How does blockchain work?

In 2008, Bitcoin white paper author Satoshi Nakamoto invented Bitcoin, a “peer-to-peer electronic cash system,” to address double spending and fraudulent transactions from the payment systems of the time. This is done by removing the need for trusted third parties to process payments, as they will be sent directly from one user to another.

Bitcoin is built on blockchain, a technology that records and stores every transaction in an immutable and chronological manner. It is both decentralized and distributed in nature, meaning that no authority has control over the data and every node on the network has a copy of the entire history of transactions. Miners must agree before a change is made in transaction, making data manipulation almost impossible.

Each node or miner on the network completes transactions (buying or selling and sending or receiving coins), timestamping and verifying them in the process. Transactions are entered into a data block; and once a block is full, it is then linked to other completed blocks, forming a chain.

For adding a block on the chain, miners earn a fee per transaction, as well as a block reward, which consists of newly minted coins. Currently, a block reward is equal to 6.25 coins. Bitcoin has a fixed number of coins at 21 million. Every four years, block rewards are halved and will continue to do so until coins are exhausted, which is expected to be in the year 2140. When block rewards stop, miners will have to rely on transaction fees to earn.

What does Proof-of-Work do?

Adding a block on the chain is not as easy as it sounds. It’s actually quite difficult. To maintain healthy competition among miners, each would have to solve an extremely complex mathematical problem before earning the right to add a block on the blockchain. The act of solving the cryptographic equation is proof that work has been done; hence it is called Proof-of-Work mechanism.

Solving the equation requires specialized equipment and supercomputers in a temperature-controlled facility, which then consumes a large amount of electricity. According to the Energy Consumption Index compiled by Digiconomist in 2022, processing one Bitcoin transaction uses 1,449 kWh, which is equivalent to the electricity consumed by an average American household for 50 days.

Viewed in this light, it is without a doubt that Proof-of-Work consumes too much electricity and leaves a carbon footprint that will be extremely bad for the environment. However, it should be made clear that the Bitcoin that both Musk and Digiconomist were referring to was actually Bitcoin Core (BTC).

It is referred to by many as the original Bitcoin because it retains the original ticker symbol of BTC. So, when people talk about Bitcoin, they actually mean BTC, which has actually been modified in a way that makes it far from the original Bitcoin. The change of the protocol, which is supposed to be fixed, and refusal to scale are two problems that led to two Bitcoin hard forks.

These forks led to the creation of Bitcoin Cash (BCH) and Bitcoin Satoshi Vision (BSV). The latter restored the original Bitcoin design according to the Bitcoin white paper. In doing so, BSV blockchain has unlocked its blockchain’s ability to scale without limits.

How is blockchain’s energy consumption calculated?

Scalability refers to a blockchain’s ability to increase its data block sizes and transaction capacity or throughput. These two are crucial for calculating a blockchain’s energy consumption as it can only be accurately measured by the number of transactions processed. Looking at the amount of electricity consumed is not enough, it must also be looked at against what it is used for. In blockchain’s case, it is the number of transactions.

For example, since BTC has refused to scale, it only has a data block size of 1MB and a throughput of seven transactions per second (TPS). Each block can contain around 2,000 transactions. Now compare this to a fully scalable blockchain like BSV.

The BSV blockchain completes 4GB blocks at a throughput of 50,000 to 100,000 TPS. Each block can contain two to three million transactions. Last May, BSV blockchain even set a new world record by completing more than 86 million transactions within 24 hours. And these numbers will continue to rise as the network scales.

Since both Proof-of-Work blockchains consume the same amount of electricity, it would be impossible to conclude that they have the same energy consumption per transaction. BTCs were very high due to its small block size and extremely low throughput.

In fact, according to a blockchain sustainability index updated daily, BTC consumes 332.52 kWh per transaction with an average of 3.01 transactions per hour (TPH), while BSV uses only 0.11 kWh per transaction because it processes 8846.75 TPH . Their carbon footprint is likewise calculated at 66.5032 kg CO2e/txn and 0.0226 kg CO2e/txn, respectively.

With these numbers, it is clear that scale is the solution for digital currencies and blockchains to become sustainable and environmentally friendly. As blockchains process a greater number of transactions, the lower their carbon footprint will be. And when block rewards are no longer given, miners will still be able to thrive because of the fees they will earn from the sheer number of transactions processed.

Thus, Bitcoin – the original design as restored by BSV blockchain – and Proof-of-Work are both energy efficient and sustainable technologies. BTC, on the other hand, is not and never will be unless it can scale in the future.

The editorial unit