The Environmental Issues with Blockchain

Justin Daab
Customer Experience Design

Blockchain is the new plastic.

If today they were making the 1967 film, The Graduate, undoubtedly, the simple career-making business advice Benjamin Braddock would receive wouldn’t be, “plastics,” it would be, “blockchain.”  What most people don’t understand is that just as plastics had once seemed a technology with limitless potential that turned out to be an environmental disaster, so may blockchain.

First, let me address what’s sure to be the first comment about this post and assure all readers I understand that blockchain and bitcoin are not interchangeable. Bitcoin is built on blockchain, sure, but blockchain has a number of applications outside of cryptocurrencies. I think it’s fair, however, to use bitcoin as a proxy for discussing the impacts of blockchain technology, at large. And I will be doing so, frequently, hereafter. Whew.

Blockchain is not inherently scalable.

For bitcoin, blockchain’s lack of scalability was a feature, not a bug. The increased computing/energy required to mine, or hash, each incremental coin in the chain would effectively ensure an upper limit on the total number of bitcoins in circulation.

But the scalability issues don’t stop there. Processing transactions on a distributed ledger are incredibly resource and time intensive. According to an article on cointelegraph.com, the block size of 1MB hard-coded into bitcoin’s blockchain means that the distributed ledger is capable of processing and verifying just 3 to 4 transactions per second. Competing cryptocurrency Ethereum has improved that result by incorporating a mechanism that increases block size as the ledger grows, but that has resulted in an increase in transactions processing to just 20 per second. Compare that still to the VISA transaction processing system which purports to be capable of more than 56,000 transactions per second.

Keep those issues in mind when the next blockchain evangelist starts talking about how blockchain will become the foundation for every business process from accounting to inventory management or logistics. If those systems or processes being ported to a blockchain favor security over real-time transactions, e.g.: property title ownership verification, or accounting for the provenance of a work of fine art, then blockchain could work quite well and most certainly handle the volume. But with the inherent bottlenecks, something akin to becoming the sole foundation for the global banking system seems unlikely.

Which means it has a massive carbon footprint.

Let’s assume that speed bottlenecks were an acceptable tradeoff for security, there’s still an unavoidable and massive compute and energy requirement. And massive is potentially an understatement. According to a review of the available literature conducted by Vice.com, the authors determined that a single bitcoin transaction consumes as much energy as the average US household consumes in a day. That’s more than 100,000 times less efficient than a single VISA transaction. But perhaps the most thorough analysis of the energy consumption impact of bitcoin comes from thedigiconomist.com. The site’s “Bitcoin Energy Consumption Index” supplies some decidedly alarming statistics. Here’s a snapshot:

Image Source: https://digiconomist.net/bitcoin-energy-consumption

Perhaps most alarming, however is that within their research, thedigiconomist.com cites an article published in the science journal, “Nature,” that makes a convincing argument that since, “the network is mostly fueled by coal-fired power plants in China,” the carbon impact of bitcoin mining, alone, could push global temperatures above 2º C.  The costs of that environmental shift aren’t yet figured into any of the current cost measures above.

And the costs are more than environmental.

If you take a closer look at the third and fourth line of the chart above, and compare the value generated from bitcoin mining and the cost of mining, it becomes evident, we are collectively getting no positive economic effect, not to mention the previously listed negative environmental from the mining effort.

The future of business, or the new tulip mania?

At every business, VC or innovation conference you’ll attend in 2019, it is highly likely one of the keynotes or education sessions will spend all, or a large amount, of its time extolling the virtues—and purported inevitability—of blockchain technology transforming the world. And maybe, someday, it will. But not until some fundamental energy consumption issues are solved.

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