Volcanos and New Proof Methods are great, but Bitcoin's Energy Problem Falls on the Community

In recent years, as the meteoric growth of decentralization continues, one topic won't go away: the environmental cost of blockchain technologies and cryptocurrencies. 

Depending on which estimate you believe, the global energy required for mining Bitcoin is between 67 and 121 terawatt-hours a year. For example, the Cambridge Center for Alternative Finance (CCAF) estimates that Bitcoin consumes around 110 terawatt-hours per year. 

That is about half of what all data centers - which help power the internet, cloud computing, and the other 4,500+ cryptocurrencies (plus the entire financial sector) - consume. By comparison, that's around the same amount of energy used by Sweden.

However, one of the reasons for the high energy cost of Bitcoin and friends is not due to the blockchain at all. Simply put, if we produced sustainable energy in the first place, energy use wouldn't be such a big deal.

"About 80% of the hash rate - the combined computing power for mining and processing Bitcoins - is provided in Asian countries," Olga Vorobyeva (Olga Vox), Founder at Vox Consulting, told me. "And none of those countries generates more than 25% of their electricity from renewable sources. Another 15% of the computing power comes from the US and Russia, and neither of those can claim to be bastions of green energy production."

Don't despair just yet.

Whether solutions have been created as a result of external pressure, internal reflection, or even as a political experiment, there are a significant number of people working to redress the balance. Some approach the problem through changes in how crypto transactions are mined, and others focus on the energy source that powers that process.

Recently, the president of El Salvador - Nayib Bukele - proclaimed that the country had mined 0.00599179 bitcoin (approximately $350 at the time of writing) using power harnessed from a volcano. And the president seems to be going all-in on a massive Bitcoin experiment. Along with the tweet that proudly announced the results of its early experiments in sustainable mining, the president posted a teaser video showing government-branded containers full of mining rigs and the geothermal energy production that powers them.

"Using volcanos to mine Bitcoin isn't new," Vorobyeva said. "The second biggest mining farm globally that we know of is in Reykjavik, Iceland. It uses an estimated 90% of the country's geothermal energy production, and almost all of the energy generated in Iceland is renewable. It stands as a great example to all and a pioneer in Bitcoin mining."

Energy sources aren't the only way to reduce the footprint associated with Bitcoin.

Bitcoin relies on a highly wasteful proof of work algorithm. And while everyone loves to cheer a new price milestone for BTC, any increase in Bitcoin's price results in more significant mining activity, which leads to higher electricity consumption.

"There are more efficient ways to maintain the integrity of a cryptocurrency, and not just in terms of energy consumption," Vorobyeva said. "The current alternatives improve transaction speeds, which helps to improve the usability and capability of those cryptocurrencies that avoid proof of work systems."

Proof of stake is an alternative to proof of work, and a pioneer in the peer-reviewed blockchain landscape - Cardano - demonstrates just how efficient this method can be. The founder of Cardano claims that the cryptocurrency network consumes only 6 GWh of power.

"I've also been impressed with Hedera Hashgraph, which passed the number of completed Ethereum transactions in May this year, making it one of the world's biggest cryptocurrency networks," Vorobyeva said. "In theory, Hedera Hashgraph can process more than 100,000 transactions per second, which would allow it to easily rival Visa, Mastercard, and other mainstream payment systems."

Another approach is seen in the Nano cryptocurrency. Nano uses block-lattice technology. It still relies on a proof of work mechanism, but block-lattice creates an account chain for each user. Account-holders vote for a chosen representative, who then work to confirm blocks of transactions securely. User accounts can be updated asynchronously rather than involving an entire linear blockchain, as with Bitcoin.

But, despite all of this, there is one fundamental thing to consider when it comes to the energy used to power the world's blockchain projects; the perception of energy against value.

"Ultimately, it is up to the blockchain community to produce valuable products and services that improve our lives," Vorobyeva said. "If the industry's perception is that it is full of scammers, Ponzi schemes, and crooks, then the cost of any blockchain project will be seen as 'too high.' The more value we create for humanity, the more the cost of providing that value will be seen as worthwhile. Of course, that doesn't mean the industry should forget about its responsibilities. Still, with so many advancements in improving the wasteful proof of work method Bitcoin uses, I'm confident the future of cryptocurrencies is a green one."