Sustainability of bitcoin and blockchains

TL;DR: It is argued that this energy consumption currently is in the range of 100–500 MW and alternative schemes that are less energy demanding are outlined, and also here energy consumption is not of primary concern.

About: This article is published in Current Opinion in Environmental Sustainability.The article was published on 2017-10-01 and is currently open access. It has received 284 citations till now. The article focuses on the topics: Cryptocurrency & Digital currency.

Summary

Introduction

• People have been using currencies for thousands of years.
• Later on, paper money was introduced and the face value of cash was decoupled from its nominal value, but currencies were still backed up by gold depositories.
• Bitcoin is a decentralized system that attempts to overcome the weaknesses of fiat and gold-based currencies.
• Current Opinion in Environmental Sustainability 2017, 28:1–9 excessive, which stands in contrast to the public opinion that bitcoin mining is a gross waste of energy.

Overview of the bitcoin system

• The bitcoin system is a distributed, peer-to-peer network.
• Each node independently verifies the transactions received, propagates valid transactions, and builds a pool of valid transactions.
• Each node collects a number of valid transactions into a block and tries to compute a cryptographic hash of the block that meets certain constraints (based on the ideas of Hashcash [16]).
• The node that won the block receives a block reward, which is a fixed amount of new bitcoins.
• And since new blocks are continuously added to the blockchain, each block linking to the previous block, also the hashes of the newly added blocks would have to be recomputed.

Hardware for bitcoin mining

• Bitcoin mining is attractive since it offers a strong financial incentive.
• Bitcoin miners customized FPGAs to support mining, which allowed to increase hash rates even further at lower power consumption.
• While transistor count continues to increase according to Moore’s law, the per-transistor speed and energy efficiency improvements slow down exponentially [23,24].
• To put things into perspective, McCook also compares the sustainability of bitcoin mining with the sustainability of gold mining and the banking system [11 ].
• Compared to these numbers, the energy used for bitcoin mining in the range of 3–16 PJ is relatively small.

Alternatives for proof-of-work

• Various alternative consensus mechanisms have been proposed to address the energy consumption of proofof-work [35].
• A block however does not include a nonce value that can be modified by the miner, but a time-stamp that changes every second.
• When a block is mined that includes a coinstake transaction, the coin age of the winner is reset.
• Hence, proof-of-stake is a raffle-like scheme, with repeatedly occurring new chances for all participants [36–38].
• Another alternative is proof-of-space, where the miner must employ a specified amount of memory to compute the proof [40,41].

Blockchains

• Blockchain is at the basis of currencies such as bitcoin, but it can also be used in many other financial and commercial applications [43–49,35].
• A contract can execute a transfer when certain events happen, such as payment of a security deposit, while the correct execution is enforced by the consensus protocol [51,52].
• Bitcoin is an example of a public blockchain, in which all records are visible to the public and everyone can take part in the consensus process.
• Current Opinion in Environmental Sustainability 2017, 28:1–9 as the major participants have reached an agreement, and hence a strong consensus protocol such as proof-of-work is not required.
• This reduces security, but improves efficiency and latency, and hence energy consumption is barely an issue.

Conclusion

• In this review the authors described the basic operation of bitcoin mining and they explored the developments in the hardware used for bitcoin mining.
• It is expected however that this trend will slow down in the next decade.
• The authors estimates show that the order of magnitude for the energy consumption is 100 MW.
• As bitcoin becomes more popular, the effort for bitcoin mining will increase.
• The authors also briefly reviewed alternative schemes such as proof-of-stake, which are far less energy demanding.

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Frequently asked questions

Q1. What have the authors contributed in "Sustainability of bitcoin and blockchains" ?

In this paper, the authors provide an overview and synthesis of recent literature published in the last two years that addresses the sustainability of bitcoin. 

Q2. What is the purpose of the GPUs?

These GPUs are designed to perform complex graphics calculations with lots of parallelism, which can be used efficiently for bitcoin mining. 

Q3. What is the effect of the quantum mechanics on the efficiency of the transistors?

While transistor count continues to increase according to Moore’s law, the per-transistor speed and energy efficiency improvements slow down exponentially [23,24]. 

Q4. What was the first company that provided ASICs for bitcoin mining?

Butterfly Labs, ASICMiner and Avalon were the first companies that provided ASICs for bitcoin mining, financed by online presales. 

Q5. What is the effect of the bitcoin arms race?

The bitcoin arms race increases the capital expenditure, which throws up barriers for newcomers to enter and causes miners that cannot keep up to drop out. 

Q6. What was the fourth generation of ASICs?

The fourth generation appeared early 2013 with the introduction of Application-Specific Integrated Circuits(ASICs) containing dedicated circuitry that is optimized to perform hashing computations as efficiently as possible. 

Q7. How much energy is needed for a proof-of-work scheme?

Private and consortium blockchains are only partially decentralized, which relaxes the need and effort for proof-of-work schemes, and hence energy consumption may be barely an issue. 

Q8. How can a node find a hash?

Finding a hash that meets the constraints imposed by the bitcoin system, is a compute-intensive task that can be executed only by brute-force trying. 

Q9. How does the energy efficiency of a transistor improve?

This is achieved by scaling the transistor capacitance, which improves energy efficiency by a factor S, and by scaling the threshold and operating voltages, which provides another factor S2 improvement in energy efficiency. 

Q10. What is the line of thought to deal with the criticism that proof-of-work as applied?

Another line of thought to deal with the criticism that proof-of-work as applied in bitcoin wastes energy, is to replace the computation of hashes by more ‘meaningful’ tasks. 

Q11. How much energy is used for mining?

Applying the 80-20 rule, assuming chip fabricators hold 80% and retail miners hold 20% of the hash power, the energy efficiency on average is estimated at 2.5 Gh/J, which corresponds to a power consumption of 120 MW. 

Q12. What was the first generation of ASICs?

ASICMiner initially did not ship ASICs to customers, but ran the ASICs in their own data center, which allowed them to capture a large fraction of the total network hash rate. 

Q13. What is the process of determining if a transaction is valid?

Before forwarding a transaction to its neighbors, each node first verifies the transaction, which includes checking the syntax and structure, and whether it is a valid transfer of an amount of yet unspent transaction outputs. 

Q14. How does the bitcoin network control the difficulty of finding a hash?

The bitcoin network controls the difficulty for finding a valid hash by adjusting the target T every 2016 blocks, with the aim of keeping the average time to mine a new block near 10 min. 

Q15. How many designs are considered in the analysis?

They consider three designs in which either energy, costs or total cost of ownership (TCO) are optimized, at an electricity price of 60 USD/MWh.