Are Bitcoin and Blockchain Bad for the Environment?

Harald Vranken at the Open University of the Netherlands (2017) estimates that bitcoin's ‘proof-of-work’ algorithm is using up to 500 MW of energy. Unlike other computing protocols, which could be improved using a more efficient algorithm, or a faster processor, the inefficiency of Blockchain is an essential part of the protocol. A question I may to put to my ICT Sustainability students next semester at ANU is "Are Bitcoin and Blockchain bad for the environment?".

In the original paper proposing Bitcoin and Blockchain, Nakamoto (p. 1, 2008) wrote "... the longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power...". Vranken (p. 3, 2017) traces the evolution of bitcoin "mining" computers, which started using general purpose CPUs in 2009, then GPUs in 2010,  FPGAs in 2011 and Application-Specific Integrated Circuits (ASICs) in 2013. Each change in technology brought about an improvement in energy efficiency, from CPUs with an efficiency of up to 0.1 Mh/J (million hashes per Joule of energy). Four years later the ASICs were up to ten-thousand times as efficient, at 10,000 Mh/J.

Vranken (p. 5, 2017) speculates about possible improvements in the energy efficiency of  bitcoin mining hardware, however, the Blockchain design has built into it a mechanism which increases the computation required as hardware (or software) becomes more efficient:

"To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they're generated too fast, the difficulty increases." (Nakamoto, p. 3, 2008).

This proof of work is used not only to reduce the possibility of fraud, but also to combat inflation of the digital currency (Nakamoto, p. 4, 2008). Those processing the transactions are rewarded with newly generated "coins". If this becomes too easy, then there would be runaway inflation.

Apart from the hardware, the major cost in bitcoin mining is the energy to run the equipment. As Vranken (p. 7, 2017) notes bitcoin's proof-of-work wastes energy, and there have been proposals to replace it with some useful task and alternative schemes to prevent fraud and inflation.However, the current proof-of-work scheme has proved remarkably effective. It would be interesting to conduct a more detailed analysis of how it compares with other more conventional financial systems, in terms of energy efficiency.

The Australian National University is offering my course "ICT Sustainability" (COMP7310) in Semester 1, 2018. I have added a reading on block-chain and bitcoin to the course, asking students to consider the energy use of this technology. The notes are available free and anyone is welcome to run their own version of the course. Athabasca University (Canada), run the course as Green ICT Strategies: COMP 635.

Reference

Nakamoto, Satoshi [Szabo, Nick?] (1 Nov 2008). Bitcoin: A Peer-to-Peer Electronic Cash System. URL https://bitcoin.org/bitcoin.pdf

Vranken, H. (2017). Sustainability of bitcoin and blockchains. Current Opinion in Environmental Sustainability, 28, 1-9. URL https://doi.org/10.1016/j.cosust.2017.04.011