Blockchain and its vast energy consumption

Blockchain and its vast energy consumption

If you’re in any way interested in technological innovations and progress, it’s more than likely you’ll have looked into blockchain and been intrigued by its systems, processes and procedures. After all, it has quickly become clear to many of us that the development of blockchain is tantamount to a revolution. And it has happened in a short time span.

In its early days, while the technology “nerds,” visionaries and start-ups were often belittled or doubted by the mainstream, few people were aware of the technology’s path to success. However, as soon as the word got around in industrial entrepreneurship circles that this new process harbours undreamt-of opportunities - and by that, I don’t just mean methods for transaction records or asset tracking - it was clear that fundamental changes would follow.

As is so often the case, however, news that’s not at first seen as sensational only reaches mass awareness when opportunities it enables become available to the majority of people. Meanwhile, many of us have heard about the exciting stories in which someone either earned millions from cryptocurrencies (Bitcoin, in most cases) or lost the coveted coins and therefore no longer has millions today. As storytelling goes, this is reminiscent of the Californian gold rush.

In the ten years since blockchain was launched, the industry that has evolved around it has had its share of ups and downs. Even so, blockchain is now globally well-established and is on a steady road to success - and this despite it still being seen as controversial. (Some see the enormous opportunities, while some ridicule the notion of it ever having a viable long-term future, and still many others can’t judge at all what it’s all about.) However, more than anything else about it – and in light of climate change and its many repercussions - most people are aware that a vast amount of energy is required to generate blockchain. Therefore, this post takes a closer look at this issue.

Cryptomining: the energy-guzzling monster of the blockchain?

First, a brief explanation about blockchain itself: a blockchain is a distributed, public database. For example, in the context of cryptocurrencies (such as Bitcoin), this database is used to manage payment transactions. The term “chain” comes from the chain to which the transactions are added in chronological order. This can be used to shed light on the energy generated by blockchain technology. An essential process is the so-called cryptomining, in which the transactions of the users are verified and added to the public blockchain ledger, i.e. the blockchain cash book. This mining process is also responsible for the implementation of new coins in the existing offer in circulation. So far, so good. Let’s now look at the values of the energy volume. Cambridge University publishes The Bitcoin Electricity Consumption Index, which showed an annual energy consumption of just under 115 terawatt-hours (TWh) in June 2021. To explain this in a way that makes sense to us as consumers, it means that a single Bitcoin transaction has an energy consumption comparable to that of 80,000 credit card transactions or the energy consumed by the average American household in 23 days. Clearly, this is a vast amount of energy. So, how does this come about?

Power consumption through cryptomining

To mine a cryptocurrency, computers must perform a complex series of calculations that require significant computing power. The common consensus mechanism “Proof of Work” is significant here, the technology of which is based on countless computers across the planet working together at their performance limit. Simply put, participants are required to have a certain amount of computing power to be given the privilege of validating and starting a new block to be allowed to attach to the blockchain. Furthermore, they are rewarded for this use of resources. Inevitably, the whole computing process also means enormous energy consumption.

Meanwhile, it has long been impossible for individuals alone to compete using conventional private computers. Instead, the norm is large computer farms, each with thousands of special computers, which is extremely energy-intensive. In principle, the energy required for this effort could be obtained from renewable sources if the relevant regulations existed - but a global, international energy regulatory authority? Unfortunately, this would be difficult to achieve, as all dignitaries involved would have to agree on climate goals and work together to achieve them. In brief: the mining location is decisive because the reality is that two-thirds of all cryptominers are in Asian countries, where energy is primarily generated from coal-fired power plants. You can imagine the extent of the negative ecological footprint this leaves behind.

How can this problem be solved?

The sheer range of opportunities and positive aspects of the blockchain would require a separate post. For now, let’s consider that blockchain applications offer potential in process applications - in which efficiency improvements can be achieved - and disruptive use cases, through which new markets arise and much else. The question is not whether blockchain has a right to exist but rather how it can be improved and developed to reduce the energy it uses. This is because it also offers opportunities in the energy sector, such as transparent consumption behaviour, efficiency incentives, better resource utilisation and even generally lower costs through the regional power supply.

Apart from using regenerative energy or introducing corresponding regulations, the actual system optimisation of the blockchain naturally also plays a role. For example, if the system is made more energy-efficient, the energy volume automatically drops. One such concept rethinking the optimisation approach is the “Proof of Stake” process.

With the proof of stake procedure, the system requires a deposit in advance – in tokens of the corresponding cryptocurrency – that entitles the user to verify blocks. Anyone who violates this loses their deposit. Of course, this doesn’t affect the actual security of the blocks or their encryption. However, it’s determined in advance who can verify the respective block instead of requiring the computing power alone to decide this. That would mean immense savings on energy use. For this reason, the energy consumption of the proof of stake is significantly lower than that of the proof of work. It’s incredible to consider that switching to the proof of stake system could save 99.95% of the energy volume currently required to operate a proof of work-based system.


Blockchain technology is still nascent, so it would be unrealistic to expect everything related to it to be perfectly thought out and functional. Meanwhile, there are many interesting initiatives and approaches to change blockchain and optimise its sustainability across the globe. Therefore, it’s realistic to anticipate that the blockchain of the future will no longer be an energy guzzler.

Though the topic of blockchain is vast and could be discussed in almost infinite depth, its single most striking fact is that it remains one of the most radical and innovative achievements in the world of IT. For that reason alone, I won’t judge blockchain and its possibilities based on its currently prevailing factors and risks - especially when it comes to the financial industry. Instead, I have confidence in the industry’s effort to address the challenges it faces, develop concepts for its future processes and use, and solve its problems. In this way, the benefits of blockchain can be fully realised. Of course, as the first and most important step, this must include reducing the energy volume used in its production because the potential for its positive future largely depends on achieving our climate protection goals. However, suppose blockchain’s eco-sustainability is prioritised. In that case, I’m confident the future will bring with it countless new solutions using blockchain technology – and so, in turn, count as one of the key success factors to benefit subsequent generations.