No need to fear environmental impact of blockchain

In his commentary (The hype and reality of blockchain; Jan 24), associate editor Vikram Khanna concluded that cryptocurrencies are an environmental disaster, based on an analysis which suggests that bitcoin consumes more electricity than all of Ireland.

That analysis appears to have originated from Digiconomist, which estimated that the power use of the bitcoin network also exceeds that of 19 other European countries.

However, according to a BBC article, the figure provided by Digiconomist makes numerous assumptions and estimations (which Digiconomist itself readily admits), and is, therefore, not without its critics.

In particular, the method used by Digiconomist to estimate the power use of the bitcoin network involves taking total mining revenues as a starting point, estimating the operational costs to miners as a percentage of their revenues, and subsequently converting these costs into energy consumption based on average electricity prices.

Specifically, Digiconomist relied on the performance specifications of common mining technology to make its calculations, which an analyst quoted by the BBC said was "wrong" because it did not take into account newer and more energy-efficient technology employed by miners.

At the same time, according to a Forbes article, a team of analysts at Credit Suisse have also looked at the issue and concluded that fears of cryptocurrencies overwhelming the power grid are overblown.

The Credit Suisse team estimated current power use by the bitcoin network to be 20,000 gigawatt hours (GWh) per year, which is small, as compared with the 4.3 million GWh used in the United States last year and six million by China.

Even if the price of bitcoin rose to US$50,000... the estimated power consumption would be around 350,000 GWh, which would still be less than 2 per cent of world power capacity.

Even if the price of bitcoin rose to US$50,000, leading miners to find it economical to boost their efforts, the estimated power consumption would be around 350,000 GWh, which would still be less than 2 per cent of world power capacity.

This estimate also does not factor in more energy-efficient mining technologies as cryptocurrencies evolve.

Mr Khanna's fear of the environmental impact stemming from the hypothetical existence of a thousand applications like bitcoin may also be a needless one.

According to the Forbes article, bitcoin mining is needlessly complex because of its proof-of-work algorithm.

New coins have simpler algorithms, and even ethereum (one of the top cryptocurrencies in the world) is shifting to a more easily processed proof-of-stake system.

Chan Yeow Chuan

A version of this article appeared in the print edition of The Straits Times on January 26, 2018, with the headline 'No need to fear environmental impact of blockchain'. Print Edition | Subscribe