By Yan Koyfmann, CEO and co-founder of the NS blockchain platform
How does cryptocurrency-producing industry affect the global ecosystem
New technologies open up new opportunities. However, nothing comes for free. In this case, how are we to pay for them?
The blockchain technology has been out there for quite a while already. The first work on a cryptographically protected chain of blocks was described back in 1991 by Stuart Haber and W. Scott Stornetta. However, only in 2017, when the popularity of the cyptocurrency exploded, it became clear what kind of energy capacities are required for the blockchain to work. The technology of distributed database by itself can be used in a variety of areas, but this was cryptocurrency that have opened up its real potential. Bitcoin came as the first blockchain application back in 2008, and it still remains the most expensive and most energy-consuming currency of our days.
Of course there are some sceptics who say that bitcoin is just a bubble, and its economy has not been ensured by anything. However, if we take into account all the energy costs we need to ensure the mining of this currency, we will have a completely different picture. Mining should be understood in the broader sense here: this is not only the immediate extraction of new coins, but also the verification of all transactions in the network by checking the old blocks and forming the new ones, that is, the operations that all members of the network are producing in all parts of the world.
In February 2017, Bloomberg ranked the countries where it is most profitable to engage in mining of crypto-currency, considering such important factors as the cost of electricity, opportunities of running a business, the availability of renewable resources, the average speed of the Internet and the average annual temperature. According to various indicators, Canada, China, Switzerland and Iceland with their 100% renewable resources and cheap electric power (priced at about $ 35 per MWt rate) were placed at the top of the list.
However, according to reports by Digiconomist, Bitcoin and Ethereum networks taken together consume more energy than countries like Jordan, Iceland and Syria. These calculations were published on July 7, 2017. Back then, Ethereum production consumed 4.69 TWh, while Bitcoin production was at 14.54 TWh level. Since then, these figures only went up.
The computational process of cryptocurrency mining is energy-intensive not only because of its performance, but also because of millions of processors around the world that need to be cooled down. Each individual bitcoin transaction currently requires 80 000 times more power to be processed than a transaction conducted via Visa credit card system, as estimated by New York Times’ journalists.
Even the creator of the Ethereum cryptocurrency Vitalik Buterin, expressed his concern about the climatic impact of the network which he manages and develops.
“I personally would be very unhappy if my main contribution to the world would add Cyprus-worth more electricity consumption and lead to global warming,” he told the New York Times.
Bitcoin already consumes 0.15% of the world’s energy. In fact, Sebastian Detman, the environmental researcher at the University of Leiden, suggested that if the Bitcoin network continues to expand at this speed, then by 2020 it will consume more than 14 gigawatts of electricity, which is comparable to the energy costs of the whole Denmark. However, this can happen even faster because of the network’s block-by-block exponential growth.
Even if we come down from the crypto-currency heavens back to earth and assess the human’s everyday needs for electricity, the whole picture will not become prettier. According to the Association of Energy Information’s forecasts, by 2040 the world’s energy demand will go up by 28%. Which means that we would have to increase existing global volumes of electricity production by a quarter. It is not the easiest task, indeed. Moreover, according to estimated data provided by the International Energy Agency in 2017, 17% of the world’s population still doesn’t have an access to electricity at all.
The main reason to be concerned is that at the moment only the non-renewable energy resources are being spent for mining, and its by-products pollute the environment with greenhouse gases. That is why all the companies that are actively implementing the use of “green” electricity in various spheres of life have been searching for new ideas and solutions to make cryptocurrency mining environmentally friendly. Fortunately, we have been successful in finding several tools that can help in solving this problem.
Using hydropower for mining is one of the most obvious solutions. A good example will be HydroMiner start-up, that established a cryptocurrency hydro-mining center in Austrian Alps basing it on two hydroelectric power plants. Powerful computers used there for mining bitcoins work 24 hours a day and consume 600 kW of inexpensive hydroelectric power. Unlike other bitcoin producers, the founders of HydroMiner claim their production does not affect the climate and is harmless to the environment. According to the co-founder and CEO of HydroMiner Nadin Damblon, by creating a mining centre near the place where electric power is being produced, a startup might only pay 4-6 eurocents per Kwt earning more than $300 000 montly profits.
“Hydropower is the best renweable source of energy that we could find,” – Damblon states.
Solar energy-based mining
Another great example of “green” mining can be the US-based NastyMining company, founded in 2012 in Arizona, which uses solar energy and wind energy to produce bitcoins. The founder, who calls himself OgNasty, created a pool platform for small miners to participate in “socially responsible bitcoin actions”. In order to join the pool, miners have to buy a seat in the NastyFans club. All 30 000 seats are currently occupied, but NastyFans also has an auction website for users who can buy and sell their seats. All members of the club earn commissions of the “green” mining, using solar energy, as well as wind power.
In 2017, the company called SunPower, which promotes solar energy in the US, donated 29 solar panels for the project, whereas YoBit crypto-exchange company gave them an additional wind generator.
According to experts, even the energy extracted by traditional methods is being used inefficiently. In fact, all the excess energy could also be used for calculating new blocks. Whereas wind and solar energy can only give an alternating energy current, this kind of heat could be a constant source.
“One of the fundamental issues and possible environmental costs of wind and solar technologies is their variability, which requires some sort of energy conservation in one form or another,” says Caitlin Sparks, clean energy expert.
All these are only few possible solutions that can be applied to cryptocurrency-related field right now. There is also a number of energy-saving devices on the market today, which can be used in multiple areas, including mining.
A good example is the Russian company Enes, which has developed a device that reduces electricity consumption and improves its quality in the network. The development project was called EnesFilter. It provided the ground for the emergence of an energy-efficient SmartEnes smart meter created by Enes.
With this device, producers and consumers will get an open access to the network power consumption statistics. This data will be recorded on the NS blockchain-platform, which is integrated with SmartEnes smart meter. SmartEnes device will combine a system for reducing energy costs and a functional smart meter, which will be keeping record of electric power amounts consumed by the miners while transmitting remote commands via decentralized applications for mobile devices.
NSplatform project may also become a platform for automated electricity billing system based on smart contracts which could help to reduce the volumes of electricity consumption as well.
The future of energy consumption
“Mining bitcoins requires a constant and continuous flow of energy, which is best provided by permanent sources such as coal and nuclear energy,” says John Quiggin, professor of Economics at the University of Queensland, Australia.
“In the end, mining will tend to places where electricity is the least expensive. Therefore, if coal is cheaper, the miners will continue to use coal,” – he adds.
The good news is that according to the network protocol, only 21 millions bitcoins can be produced, and every four years the number of coins received as a reward will be reduced by half – at least according to the Head of the Coin Center Peter Van Valkenburg.
“In the end, its value will be decreasing, which means that less people will be mining and spending electricity on it,” he says.
But there is a problem: according to theoretical calculations, the last of these 21 million bitcoins will be mined around the year 2140. It is quite a long time to think about the need to use innovative technologies, such as energy-saving filters, or the transition to “green” energy.
All these facts show that we are still at an early stage of the cryptocurrency industry development. As this industry will expand, we will have to switch to new technologies of clean energy. Just like blockchain technologies may obsolete centralized institutions and lay the foundation for a new era of distributed processes, green energy may replace the traditional uneconomical and non-ecological ways of producing and consuming energy.