Having garnered a great deal of attention in recent years, cryptocurrency use has grown exponentially. Bitcoin (BTC) has become particularly popular, serving as a decentralized method of payment that is both anonymous and often untraceable. Unfortunately, the process of performing Bitcoin transactions consumes an excessive amount of electrical energy. Indeed, Bitcoin, Litecoin (LTC), Ethereum (ETH) and other coins that require a Proof-of-Work (PoW) consensus algorithm to conduct transactions, are primarily to blame. The PoW algorithm requires other “miners” on the network to validate each and every transaction and block addition onto the blockchain. In short, the blockchain exists as a very large pile of data containing the history of all transactions, addresses and other info that is written onto it.
An enduring incentive to mine?
Bitcoin makes a good comparison with gold – being a scarcity and hard to mine (literally). Likewise, individuals don’t carry around gold for everyday use or go grocery shopping with it, just as they would not use Bitcoins for that same purpose. Although Bitcoin exists to shift around tremendous amounts of money, it will be increasingly costly to keep the network running. Eventually, the incentive (reward vs. effort) to mine another block is expected to be so low that miners will stop or switch to different currencies. This poses another threat, where 51% of the network can be possessed by a single miner, allowing for 51% attacks to occur and rendering the whole Bitcoin obsolete (see 51% Attack Protection is at Hand).
A blockchain running on a PoW algorithm needs to be “mined”, meaning that miners must use their computing power (graphics cards) to calculate the size and form of the next block to be added to the blockchain. The difficulty of the PoW algorithm (and it differs for each coin) determines how much computing power is necessary to calculate a new transaction block. Expressed as the Hash rate per unit of time (generally MHash/s for individuals) – this rate is directly proportional to the computing power available for mining. However, it’s really nothing more than a statistical probability of calculating the correct block. In the Bitcoin protocol, miners get rewarded for calculating the correct block, from which they collect all the fees that were processed in the block. Paying a higher transaction fee therefore results in a higher probability to be included in the next block, leading to faster transactions.
Currently, the annual energy required to mine Bitcoin stands at 40 TeraWatts·hour (TWh) . When we take other PoW coins into account, this energy bill ramps up even higher. If other major contenders like Ethereum are taken into account, cryptocurrency energy use increases another 25% (about or 10 TWh) . Adding these two together, an amazing 50 TWh of electricity is consumed annually. Litecoin, the third major cryptocurrency, use approximately 10% of Bitcoin’s energy to mine. In total, the three biggest PoW coins would then use up around 55 TWh annually altogether.
The United State’s Energy Information Agency (EIA) records that the average household consumes almost 11.000 kWh of electrical energy annually . Divided by the 55 TWh consumed annually by cryptocurrency mining, we see that crypto mining consumes as much electricity as 5 million US households each year. Put another way, this is 51% of The Netherlands’ annual electricity usage (being 110 TWh in 2014), or more than the total electricity consumed by such countries as Kuwait (54 TWh), Greece (53 TWh), Algeria (49 TWh), and Romania (48 TWh). Indeed, if Bitcoin was a country, it would rank as #45 in a global list of countries ranked by electricity consumption (between Switzerland and Kuwait).
Not incidentally, China’s recently stated desire to make crypto-mining illegal  may partly reflect concerns about mining’s ecological impact. The country is 4x as populous as the United States and struggling to meet growing energy consumption needs. At present, China is the global leader in hash rate power production, owning up to 60% in the total network . Consequently, this move will likely have a negative impact upon cryptocurrencies in the short-term.
Even if 50% of the energy consumption were to come from renewable energy, it would still not be deemed ecological by any means. The carbon footprint for a single Bitcoin transaction is still very large, having an equivalence of almost 100 kg of CO2 being produced . In comparison, an average car needs to travel 1000 km to produce the same amount of CO2 as 1 Bitcoin transaction requires (assuming the average emission of 100 grams per km (EU law requires it to be below 95 g in 2025) ,
Obviously, this is something that needs to change if we want to save our environment. Alternatives that consume far less power than PoW are out there, such as the Proof-of-Stake (PoS) protocol (onto which Ethereum wants to move with their Casper project) . Unfortunately, Proof-of-Stake brings with it other problematic issues that make it a less-than-ideal alternative as well [9,10]. This essay will end by holding out hope that XTRABYTES’ newly created Proof-of-Signature  algorithm will fully tackle the downsides found in both PoW and PoS. Being a virtual network within a network, it relies on master nodes rather than miners to verify transactions – and simply by signing with a signature.
- Bitcoin’s power consumption. https://digiconomist.net/bitcoin-energy-consumption
- Ethereum’s power consumption. https://digiconomist.net/ethereum-energy-consumption
- The annual power consumption of US households. https://www.eia.gov/tools/faqs/faq.php?id=97
- Annual electricity usage of countries. https://en.wikipedia.org/wiki/List_of_countries_by_electricity_consumption
- China’s leaked documents on banning Bitcoin mining. https://www.blockchain24.co/chinas-next-move-banning-mining/
- China dominates 60% of the Bitcoin network’s hashrate. https://bit-media.org/bitcoin/where-in-the-world-are-bitcoin-mines-located/
- Cars and CO2 emission. https://www.transportenvironment.org/what-we-do/cars-and-co2
- Ethereum wants to migrate to Proof-of-Stake. https://www.coindesk.com/ethereum-casper-proof-stake-rewrite-rules-blockchain/
- Proof-of-Signature triumphs. https://blog.xtrabytes.global/technology/proof-of-signature-triumphs/
- Is Proof-of-Stake really the solution? https://hackernoon.com/is-proof-of-stake-really-the-solution-2db68487f4ba
11. Proof-of-Signature explained. https://blog.xtrabytes.global/technology/posign-xtrabytes-technology/