Companies have a plan to fix blockchain’s massive energy problem

You’d have to be almost deaf and blind to not notice that at the moment everyone’s favourite emerging technology plaything, asides from Artificial Intelligence (AI), is Blockchain. Go to an event of conference anywhere in the world and there will be crowds of people talking about it in exuberant terms telling you how they’re using it to change the world, but with the very same breath they’re also hoping noone’s going to ask them about its environmental footprint, which, bearing in mind that processing Bitcoin alone, by some estimates, is now consuming over 32 Terrawatt Hours (TWh) of electricity, which puts it on a par with Denmark and Serbia is, frankly, a sore point. Sorry Bitcoin fans, you’re helping kill penguins. Sad face emoji.

But it doesn’t just stop with Bitcoin, Ethereum snaffles electricity too like it’s going out of fashion, as do most other cryptocurrencies, except for the possible exception of the IOTA Foundation’s blockchain look-a-like “Tangle” that doesn’t use miners and is designed from the ground up to run lean on mobile devices. Boy, who knew penguins could look so sad…

Now though a solution might be at hand, but before I get to that let’s talk about miners. Blockchains get a lot of love, but they are only shared sets of data. What brings cryptocurrencies like Bitcoin and Ethereum to life is the way all the computers in their networks agree, over and over, that what a blockchain says is true, and to do this they use an algorithm called a consensus mechanism, and it’s this that many people call mining.

Cryptocurrency miners do much more than unlock new coins. In the process, they check the blockchain to make sure people aren’t spending coins fraudulently, and they add new lists of transactions, the blocks, to the blockchain. It’s the second step, meant to secure the blockchain from attacks, that guzzles electricity.

Ultimately, the miners must transform each list of the most recent transactions into a digital signature that can serve as proof that the information is true. All miners can do this, using a cryptographic tool that takes any input and spits out a string of seemingly random characters, but Bitcoin’s creator, Satoshi Nakamoto, made this part particularly difficult.

Nakamoto set up a competition, the object of which is to be the first to determine a very specific signature based on three inputs, namely the signature of the preceding block, the list of new transactions, and a random third number. Since miners don’t know the third number, they must generate digital signatures repeatedly until one guesses correctly. This expends an immense amount of energy, signalling to the rest of the network that a miner’s accounting can be trusted. But while this particular method of reaching agreement, which is known as “Proof of Work” is the most established, it isn’t the only one. Now, a growing number of technologists are exploring different avenues, and some smaller cryptocurrencies, like IOTA’s Tangle, which is backed by none other than Microsoft and that uses something called a Directed Acyclic Graph, are already using different techniques.

The technique that’s leading the pack at the moment though is one known as “Proof of Stake.” Whereas proof of work rewards participants for spending computational resources, blockchains that use proof of stake would select validators based in part on the size of their respective monetary deposits, in other words their stake. However, while this would be much more energy efficient it’s still unproven at a large scale and has a number of kinks that need working out.

Still, if all goes as planned, Ethereum will transition to proof of stake relatively soon, perhaps in the next couple of months which would be hugely impressive, given that its creator Vitalik Buterin has called devising an effective consensus algorithm “one of the hardest problems in cryptocurrency development.”

For now though the majority of us are still stuck with energy guzzling cryptocurrencies, and we can ease our conscience somewhat by only investing in cryptocurrencies that use renewable energy, but as Bitcoin and others get harder and more energy intensive to mine it’s inevitable that at some point the industry is going to have to look at, and more importantly, embrace, alternatives.