When talking about Blockchain, the preconception is often that this technology raises a strong issue related to its energy consumption. Considering the current context regarding climate change, it is relevant to ask this question. However, it is often unknown that Blockchain uses different consensus algorithms to validate information within blocks and how much their impact can differ. Let’s bring more clarity to the topic.
What is Blockchain?
Blockchain is a decentralized and immutable digital ledger of information, accessible by different stakeholders who can record transactions in real time. Because the trail is tamper-proof compared to centralized database, Blockchain allows a high degree of trust and security in the data that is uploaded.
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Different consensus mechanisms of Blockchain
To function, each Blockchain must define a protocol, called consensus algorithm: an agreed upon methodology that allows the network to reach a collective agreement, to decide whether a transaction needs to be validated or not. Today it exists various consensus mechanism, each one offering different advantages. It is in the different protocols that lays the biggest difference of energy intensity of Blockchain.
Some examples of protocols:
Proof of Work (PoW) was the first protocol to be used in Blockchain application, for Bitcoin. It is the most widely used consensus algorithm pattern, especially because it is easy to set up. It is based on the right to create a new block of transactions by finding a solution to complex high level computational “puzzle”. The process to solve this puzzle is called “mining”. Proof of Work is a strong protocol for very large networks (like Bitcoin) but because the mining process requires strong computation, it is an energy intensive protocol and requires special equipment. The energy consumption of a proof-of-work blockchain network can vary depending on a variety of factors, including the number of miners on the network, the efficiency of the mining hardware they are using, and the overall level of network activity. A Cambridge University study estimated the Bitcoin network’s 2021 energy consumption to approximately 100 TWh.
Proof of Stake (PoS) is based on the principle that the network is maintained and secured by the amount of money validators put at stake. It does not involve any computationally intensive process nor specific equipment. Therefore, Proof of Stake is recognized to be a strong alternative when looking for mechanism less energy intensive than PoW.
Proof of Authority (PoA) is a variant of the Proof of Stake, where, instead of money, the network users stake their identity and reputation. This means that users in PoA systems are known entities that put their reputation at stake. Like PoS, it requires minimal computational efforts therefore it limits its energy consumption.