Report Shows Bitcoin is Grossly Energy Consumptive. But is Proof-of-Stake Relevant for Bitcoin?

Alex de Vries, Digiconomist.net founder and a blockchain specialist at PwC’s Experience Centre since 2015, has produced an important report on the Bitcoin network’s extreme energy consumption and waste production, which far exceed that generated by regular banking.

De Vries conclusion that Bitcoin should “follow the example set by others” (he names proof-of-stake networks DASH and NXT), is unsatisfactory, however.

“Proof-of-stake” has been proposed as an alternative way to secure public crypto networks. Rather than engaging in the high electricity and hardware consuming game of “proof of work” currently used to secure Bitcoin and several other networks, stakers engaging in proof-of-stake network processing stake their own crypto holdings and are docked if they misbehave.

Bitcoin advocates have argued convincingly that the ‘proof-of-work’ model of processing transactions on a public crypto network is the only viable way of keeping a truly public network secure.

In short, their argument is that when every transaction is expensive to produce, it is equally as expensive to undo. They argue that this is not the case in proof-of-stake networks.

More regarding this will be discussed at the end of the article, but suffice it to say now that, according to Bitcoin programmer Jimmy Song, “There’s this perception with proof-of-stake networks that you get all of the benefits of proof of work and that is simply not true.”

The de Vries Report

One popular narrative among defenders of Bitcoin is that, while highly energy consumptive, the Bitcoin network still consumes far less energy than traditional banking.

There are indications that the Bitcoin network consumes about as much power annually as Austria or Switzerland, but only processed about 81.4 million transactions in 2018.

The means the average energy cost of a single Bitcoin transaction is about 491.4 kWh (40 TWh/81.4 M) to 765.4 kWh (62.3 TWh/81.4 M).

One kilowatt is 1000 watts, and according to Bright Hub Engineering, household items consume the following watts every hour they are in use:

  • Electric clothes dryer: 6000 watts
  • Cloth washer : 425 Watts
  • Refrigerator : 188 watts
  • Dishwasher: 200 watts
  • Central AC: 6000 watts
  • Window AC: 1300 watts
  • Flat screen TV: 150 watts
  • Freezer : 273 Watts
  • Water heater: 473 Watts
  • Toaster oven : 1200 watts
  • Ceiling fan: 60 watts
  • Coffeemaker: 1200 watts
  • Blender: 300 watts
  • Mixer: 200 watts
  • Iron: 1000 watts
  • Toaster: 1000 watts
  • Computer:95 watts
  • DVD player: 25 watts
  • VCR: 11 Watts
  • Electric blanket: 250 watts
  • Cable Box: 20 watts
  • PC monitor : 150 watts
  • Laptop: 50 watts

If the stats provided by de Vries regarding the energy costs of a single bitcoin transaction are true, a single bitcoin transaction consumes about the same electricity as 100 loads of laundry washed and dried and over 1000 loads if they are only washed electrically.

De Vries goes on to compare Bitcoin power consumption with that consumed by regular banking networks:

“Focusing purely on data centers, it can be found that all of the world’s data centers were estimated to consume 194 TWh of electricity in 2014, with an expected growth of only 3% to 200 TWh in 2020 (iea.org/digital/). It is unknown what share is used by the financial sector, but we can establish that the facilities used for Bitcoin mining already require at least 20% of this amount (40 TWh/200 TWh). On top of this, the financial sector is significantly bigger than the Bitcoin network. Bitcoin processed only 81.4 million transactions in 2018 (retrieved from blockchair.com)…The global banking industry, by contrast, is processing 482.6 billion non-cash transactions per year..(and)  The average electricity footprint for processing these transactions can only be 0.4 kWh (200 TWh/482.6 B) at most.”

Comparative carbon footprint data is equally daunting:

“According to the Bitcoin Energy Consumption Index, Bitcoin’s energy use in 2018 translates to a carbon footprint of 19.0 to 29.6 million metric tons of CO2 (475 g CO2 / kWh). The average carbon footprint per transaction would then range from 233.4 to 363.5 kg of CO2. By comparison, the average carbon footprint for a VISA transaction equates to 0.4 g of CO2…”

Only “Surplus Energy” Consumed?

Bitcoin proponents like to assure themselves that the energy the sector consumes is otherwise surplus. But de Vries provides evidence that this is not always the case:

“…(P)roponents of the digital currency argue that the ultimate environmental impact is limited. Their primary argument is that the majority of Bitcoin mining is mainly powered by what would otherwise be a wasted surplus of renewable energy….Although miners may indeed be able to take advantage of cheap quantities of hydropower, limited environmental impact is not a foregone conclusion.”

The Bitcoin is competitive and must regularly upgrade its machinery to compete effectively:

“As the chance of creating a new block for the blockchain is proportional to one’s share of the total computational power, each newly added mining unit marginally dilutes the expected income of all others.”

Voluminous E-Waste

The “arms race in bitcoin” has lead to the voluminous production of e-waste, says de Vries:

“In such an environment, miners can only compete in terms of cost efficiency…This has caused a rat race to develop more efficient mining hardware and explains why Bitcoin mining is now done with ASICs rather than CPUs…only the most cost-efficient machines can remain economically viable for mining. A rational agent will shut down a less efficient machine once its energy costs exceed the value of the Bitcoin generated with it…”

Although de Vries goes on to question “renewable energy” claims popular among Bitcoiners (who almost invariably are consciously or unconsciously ‘talking their bags’) de Vries also lingers importantly on the matter of e-waste:

“One thing that renewable energy cannot solve at all for Bitcoin’s environmental footprint is what happens to the mining machines once they reach the end of their economic lifetime. For ASIC mining machines, there is no purpose beyond the singular task they were created to do, meaning they immediately become electronic waste (e-waste) afterward.”

As the prices of Bitcoin and other cryptos crashed over the course of 2018, photos emerged of piles of damaged and obsolete mining rigs being junked in China:

That single bitcoin transaction that consumed as much as a thousand laundry washes also helped burn out a dedicated piece of hardware.

According to de Vries:

“…the Bitcoin network was estimated to process around 54.7 exahashes per second. We can subsequently establish that it would require at least 3.91 million Antminer S9 machines, with an advertised output of 14 terahashes per second, to produce that amount of computational power. The combined weight of these machines would amount to 16,442 metric tons. This number represents the minimal quantity of mining equipment in the network, as the Antminer S9 had the least amount of weight per unit of computational power at this time.”

De Vries estimates that cryptocurrency mining machines become obsolete every 1.5 years:

“With the release of the new (more cost efficient) Antminer S15 in December 2018, we can expect all of this equipment to become obsolete in the very near future. The recent drop in total network computational power, following a decreasing Bitcoin price and mining machine profitability, suggests that this process is well underway. From October to December 2018, the total computational power in the network decreased by 19.9 exahashes per second, meaning at least 5,973 metric tons of mining equipment were removed from the network. Although this does not mean they were immediately disposed.”

According to de Vries:

“If Bitcoin cycles through 16,442 metric tons of mining equipment every 1.5 years, the annualized e-waste generation would amount to 10,948 metric tons. This amount of e-waste is comparable to the total e-waste generated by a country like Luxembourg (12 kt).”

This is the equivalent of throwing away two size C batteries every time one sends a bitcoin transaction:

“…it amounts to a staggering (real waste) average footprint of 134.5 g per transaction processed on the Bitcoin network in 2018 (81.4 million). This is as heavy as two “C” size batteries (130 g) or four standard 60 W light bulbs (136 g).”

A Visa transaction here is much lighter:

“(Visa) If we then assume this equipment would be replaced in full every year, the average e-waste footprint per processed transaction (124.3 billion in total for 2018)…would still only amount to 0.0045 g.”

There can also be a lot of other equipment involved in the “manufacture” of bitcoins:

“Other equipment present in mining facilities, like cooling, has not been taken into consideration.”

Cheap Hydro in Southwest China Supplemented by Coal 

Crypto miners trot the globe in search of cheap and “renewable” electro, and Sichuan province has been one popular destination.

But, plentiful electricity there is seasonal:

“The southwest of China is capable of producing large amounts of hydropower while local demand is substantially lower. Unfortunately…Because of insufficient grid penetration and a lack of high-quality grid infrastructure, the power export capacity of the region is also limited…”

According to a source cited by de Vries, “In Sichuan, specifically, ‘the average power generation capacity during the wet season is three times that of the dry season’…(and) These fluctuations in hydroelectricity generation need to be balanced out with other types of electricity. CWR adds that this “is usually coal,” and as a consequence, this renewable option is ‘not technically 100% green.'”

On the contrary, says de Vries. When power runs short in Sichuan, the region fires up its coal plants.

Bitcoin miners may indeed be creating an important alternate payment/”digital gold” network for humanity, but they are also turning a blind eye:

“Miners may indeed be able to take advantage of (temporary) excesses of hydroelectricity, but they effectively increase the baseload demand on a grid throughout the year. This demand has to be met with energy from alternative sources, when seasonality causes production of this renewable energy to fall. In the worst-case scenario, it presents an incentive for the construction of new coal-fired power stations to fulfil this purpose.”

To de Vries, “energy-hungry and polluting industries (are) trying to take advantage of the low rates in Sichuan. Bitcoin mining is one these industries.”

Conclusion

De Vries concludes that enhancing renewable energy sources to power Bitcoin will not necessarily redeem the network:

“Given the fundamental challenges in uniting Bitcoin mining with renewable energy, along with the fact that energy use is not the only way in which Bitcoin impacts the environment, we should conclude that renewable energy is not the answer to Bitcoin’s sustainability problem.”

De Vries advocates “proof-of-stake”:

“Alternatives to Bitcoin’s mining mechanism, such as Proof-of-Stake, are already available and used by an array of alternative cryptocurrencies (e.g., Dash and NXT). In these systems, participating machines do not have to use their computing power. This prevents both extreme energy use as well as the incentive to develop specialized (singular purpose) hardware and showcases that blockchain technology does not necessarily have a significant environmental impact. What is left is for Bitcoin to follow the example set by others.

But critics like Jimmy Song insist proof-of-stake will fail and cannot properly armor a public crypto network like Bitcoin.

Song outlines his concerns of “proof of stake” in this video.

Essentially, Song argues that proof-of-stake networks can be gamed via a “stakegrinding” hack, whereby a bad actor, “creates a new randomness, and…tr(ies) that randomness until you get the stake. So it’s actually not secure.”Creating “a new randomness” (meaning the random number set by the network to encrypt transactions with), can allow the bad actor to steal transaction fees and block rewards (crypto paid out in the game of securing the network):

“Even though you signed the block, someone can go back in the history and change it so that they are the ones that composed that block. And you can game it in such a way that you can just reorg a lot of (transaction) history.”

Proof-of-stake advocates might then advise that a “crypto community” could gang up on the bad actor and reject the fork the bad actor has  gamed, “But that also gives up a very, very big property,” says Song, “which is that you are no longer decentralized.”

I would add that the real issue that emerges through my contemplation of the de Vries report is not necessarily that Bitcoin should be “destroyed by staking,” but that all other “crypto networks” which appear to be actually privately and not publicly-controlled, should drop the “blockchain” ruse and the vanity proof-of-work, and just do a better Visa via regular computing if that is what they really are.

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