Is blockchain a climate killer?: In the media, blockchain is often accused of being an ‘energy guzzler’. Is this true? Below, the VDT’s ‘Cryptocurrency’ working group takes a closer look at this misconception.

According to the Digiconomist platform, as at 11 July 2021, the Bitcoin network consumed a total of around 135 TWh per year. This is roughly equivalent to Sweden’s electricity consumption. (See: https://digiconomist.net/bitcoin-energy-consumption/). Why is that? The Bitcoin network operates according to what is known as the consensus mechanism Proof-of-Work (PoW) . ‘Mining’ involves computers solving a complex mathematical problem, which validates transactions on a blockchain and adds new blocks. It is precisely this process that requires high computing power and consumes a great deal of energy. It is therefore understandable that the cryptocurrency Bitcoin is described as an energy guzzler.

However, it is important to emphasise that 40–70 per cent of Bitcoin mining is powered by renewable energy (see: https://hbr.org/2021/05/how-much-energy-does-bitcoin-actually-consume). A report by the Federal Ministry for Economic Affairs and Energy shows that blockchain technology can be used to promote renewable energy. (see: https://www.digitale-technologien.de/DT/Redaktion/DE/Downloads/Publikation/SSW_Energierevolution_getrieben_durch_Blockchain.pdf?__blob=publicationFile&v=12).

 In addition to the PoW algorithm used by the Bitcoin network, other consensus mechanisms that require less energy are certainly in use in blockchain networks; for example, Proof-of-Stake (PoS). Whilst energy costs per transaction on the Bitcoin network amount to around 830 kWh, they amount to 30 mWh on a PoS network such as Tezos. (see https://cvj.ch/fokus/hintergrund/klimabilanz-der-blockchain-technologie/).

 In summary: It is important to distinguish which cryptocurrency or blockchain is being referred to. The statement “Blockchain is a climate killer” is certainly true for the Bitcoin network, but does not apply to all cryptocurrencies and blockchain solutions. (Publication date: 14 July 2021)