Cryptocurrency’s ecological woes are no secret. As NFTs (non-fungible tokens) exploded in early 2021, so did the conversation about how much energy goes into a single transaction on the blockchain.
There’s no shortage of examples illustrating the blockchain’s enormous energy consumption either: A single transaction on Bitcoin’s network consumes as much energy as a U.S. household for two and a half months, and the annual existence of Ethereum has a comparable carbon footprint to the entire country of Libya. Cryptocurrency has even been reported to be the reason for electricity grid failures and power outages across the globe where clusters of miners and machinery are located.
One of the main reasons that crypto gobbles up so much power is the underlying consensus mechanism that Bitcoin, Ethereum, and many other blockchains used to validate transactions: A system called proof of work (PoW). Essentially, in PoW networks, cyrptocurrency miners compete in a guessing competition for who gets to mine the next block. More computational power equals more chances to win, which effectively incentivizes more energy consumption.
Crypto users and critics alike generally acknowledge that PoW is not environmentally sustainable. Because of this, many NFT artists often donate a portion of their sales to carbon offsetting projects, while some legislators use crypto’s emissions as just cause for a governmental crackdown.
However, a common refrain among crypto enthusiasts when confronted with the industry’s environmental impact is to point to the momentum in upgrading popular networks to a different consensus mechanism called proof of stake (PoS). Unlike PoW, PoS doesn’t require miners to have massive amounts of computational power, yet is still capable of validating transactions.
But moving onto a PoS network won’t be easy. For example, Ethereum’s move from PoW to PoS has been years in the making and has faced repeated delays. Cryptocurrency is founded on the principle of being decentralized — meaning there is no one person, company, or figure authorizing the blockchain or how it operates. So despite the fact that most of the blockchain/crypto community are in favor of making the switch to a more sustainable consensus mechanism, it still hasn’t happened.
“Once you launch on proof of work, moving away from it is a lot harder than starting out on something that is a lot more environmentally friendly,” Alex de Vries, founder of Digiconomist, which tracks “unintended consequences of digital trends,” said. “Changing stuff in a blockchain-based system is tremendously difficult, not so much because it’s technically difficult, but the complexity is the fact that nobody is in charge of these systems.”
So what is the difference between PoW and PoS? Both algorithms are a way to decide on who gets to create the next block for the blockchain — an essential part of the blockchain system (hence, its namesake). What both PoS and PoW networks are attempting to do is force a completely random selection among its participants (miners). Randomness is key to preventing fraud, as well as a key element in decentralized finance.
In PoW, miners are basically playing a big guessing game — generating billions of different number variations in the hopes of getting lucky and guessing the right one. If you guess right, you get to create the next block for the blockchain, and receive a reward for doing so. The more computational power a miner has, the bigger chance you have of winning the chance to create the next block. This is why there’s been a large centralization of physical machine equipment in places like China, the U.S., and Kazakhstan.
Whereas in PoS, winning doesn’t depend on computational power. Miners still have to make the right guess to be chosen to create the next block, though. To be a validator in a PoS network, you first need to acquire some kind of coin — the cryptocurrency of your chosen network. So, if Ethereum was on a PoS network, a miner would have to acquire some Ether. You’d then put your coins at stake, as collateral to play the guessing game. Then the algorithm randomly picks a participant out of the pool to create the next block. The key difference is that, in this system, the more money you have at stake, the better your chance of winning. That’s where the energy consumption differs. The Ethereum Foundation estimates that the network’s move to PoS will result in a 99 percent decrease in energy usage.
The blockchain is meant to be difficult. The more users, validators, and miners there are on a blockchain network, the more robust it is. This is why executing networkwide upgrades is difficult, but it’s what also makes attacking the system difficult
And despite Ethereum’s goal to move to PoS by the end of the year, it’s not up to the network to make those decisions.
“Every participant in this network needs to individually decide whether or not they want to run this upgrade, that’s where the main complexity is, it’s more of a social thing than a technological thing,” de Vries said. “The whole technology exists on the basis that nobody is supposed to be in charge — if someone is in charge, it’s not a blockchain.”
Aligning the entire Ethereum community to upgrade its software to PoS is the main challenge facing the platform. Some validators and miners may refuse to upgrade, de Vries said, because they could lose their source of income.
Crypto evangelists, or purists, may stick with PoW as well, as many consider it “the only way to go” for security purposes, according to Offsetra co-founder Damien Schuster.
“The volume of activity from Ethereum wasn’t expected to grow as fast as it did,” he added. “You know the kind of saying, ‘No one goes there because it’s always busy’? That’s the Ethereum network.”
If not everyone is on board, or if there is not a two-thirds consensus among users to upgrade software, platforms have been known to split off (for example, Bitcoin and Bitcoin Cash, as well as Ethereum Classic and Ethereum), which may be imminent for Ethereum’s upcoming merge.
But some users are optimistic. Digital artist William Murphy (@wgm_v) believes the community is “enthusiastic” about the change and believes “this year will actually finally be the year.”
“Proof of stake has always been the plan and anyone that’s an Ethereum enthusiast is generally all for it,” he said. “I think the only people that have been pushing back on it are the people that are Bitcoin maximalists that sway way towards the side of decentralization at any cost. The ecological advantages and, to be honest, financial advantages make too much sense to think that proof of work would still be the move.”
For crypto users keen to keep their carbon footprint low, de Vries suggests using platforms that started out on PoS networks instead (of which there are plenty).
Linda Lu, head of ecosystem at Oasis Foundation, believes the barrier of entry for PoS networks is a lot lower and “highly scalable” compared to PoW — allowing for faster transactions and lower “gas” fees (the fees it costs to process transactions on blockchain).
Oasis is a “privacy-enabled blockchain” platform with dual consensus layers, and has operated on a proof-of-stake network since launching in 2018. Its native coin, the Rose token, is a fixed-capped currency for “transaction fees, staking, and delegation” and touches the Ethereum network. For platforms like Oasis, sustainability was at the forefront of its mission since day one.
“Every technology has its own journey,” Lu said. “Over the past decade, we were still at the early stage of this industry where we were just waking up to what is blockchain and digging into the gold mine to see opportunities. Stage one, you recognize this thing is good. And stage two is how do we continue to have this good thing before we make some irreversible damage with this technology?”
Lu thinks the industry is currently entering stage two — understanding the impact of crypto while still spreading the message of the blockchain to the mainstream.
“Just because proof of stake has proven to be the most scalable and sustainable consensus mechanism now, doesn’t necessarily mean there will be no other network that can beat proof of stake in the future,” she said. “That’s the beauty of the industry.”
Until Ethereum makes the switch to a more eco-friendly network, NFT artists and crypto users continue to make carbon offsetting part of their decentralized finance routines, according to Schuster. Offsetra, and its carbon calculator project Carbon.fyi, have grown substantially in the last year, alongside the NFT boom, as has the carbon market.
“In conjunction with explosive crypto growth, the voluntary carbon market, which when most companies make carbon offset pledges, they’re working in that space, also exploded,” Schuster said. “The price of offsets is going up, so companies that once perhaps might have been able to buy a lot of really cheap offsets and make offset claims, well, now that’s five times more than they would pay. So that puts direct pressure on them to directly reduce their own emissions.”
Who is responsible for cryptocurrency’s emissions and energy usage is a point of contention and consideration among NFT artists. Many see the space as an opportunity to make money from their art, some for the very first time, like Murphy, but against their audience’s ecological values. This is why Schuster argues anyone interested in dabbling in the blockchain should just go for it.
“Whether or not you launch your NFT project or not, Ethereum’s emissions are probably going to be the same,” he said. “So if your project can raise money for climate finance to buy offsets, or donate to an organization, or fund people’s livelihood, I’d say it’s worth the expenditure. It’s kind of like buying a ticket for an airplane. It’s still going to take off whether you’re on it or not.”