The green revolution of blockchain?
As current blockchain technology faces accusations of inefficiency and unsustainability, a new technology is finding its way to counteract them.
Crypto blockchains are a highly discussed topic. Blockchain is used by many cryptographic networks (e.g. Bitcoin and Ethereum) to enable different transactions. In this context, transactions are cryptographically signed instructions from participants of the network to update the state of the network. The simplest transaction is transferring the cryptographic value, known as coins from one account to another. A blockchain can be described as a chronological concatenation of blocks. These blocks contain various data. For example, information about the transaction itself, the creation date and other information necessary for the creation and transaction. These blocks are linked together, creating what is known as the blockchain.1
Original Blockchain technology
To create such a blockchain, so-called 'miners' are required. These miners are users of the respective blockchain that expand the chain by creating new blocks. It is necessary to ensure that only legitimate transactions become part of the chain. To create a new block the miners have to solve a cryptographic problem i.e. find the corresponding key (the so-called Hash value) to connect the new block to the blockchain. To create an incentive for the miners to work, the first miner that solves the problem receives a payment in the respective cryptocurrency. As many miners are working in parallel to solve the problem only the winner that has 'worked' the hardest or fastest gets to update the blockchain with the transaction. This original consensus mechanism is called 'Proof of Work' (PoW).2
Disadvantages of ‘Proof of Work'
The proof of work mechanism has one massive disadvantage: Energy consumption. Due to the high processing power needed to carry out the mining as quickly as possible, the energy consumption is enormous. Studies have found that bitcoin alone consumes more than 100TWh per year.3 This equates to twice the annual electricity usage of Switzerland.4 Specifically with regard to Ethereum, an immense increase of the energy consumption has been measured.5