Can Blockchain be Sustainable? Exploring the Ethereum Merge and Greener Web3 Solutions

Web3 has the potential to completely transform our digital lives. Decentralized applications, non-fungible tokens, and other blockchain-based innovations have opened up new possibilities for online interactions and commerce. But for all of Web3’s potential in creating a more open and transparent internet, blockchain technology has sparked a heated debate, and for good reason: its environmental impact is massive.

Bitcoin, the world’s leading cryptocurrency, consumes an estimated 150 TWh of energy annually – more than all of Argentina, a country with a population of 45 million. This contributes to the release of nearly 65 million metric tons of CO2 into the atmosphere each year. Moreover, the surging demand for digital currencies has only intensified the problem; between 2018 and 2022, the United States experienced a fourfold increase in annualized electricity consumption attributed to crypto assets.

As we navigate the dynamic realm of blockchain, addressing their environmental impact and pursuing sustainable solutions for the industry’s future is of paramount importance.

What makes the blockchain so energy intensive? Much of it is related to the Proof of Work (PoW) consensus networks relied on by many blockchain networks. Some players in the industry, like Ethereum, have turned to Proof of Stake as a potential solution. But is it enough? And will dominant players, like Bitcoin, follow suit? In this blog, we’ll talk about what makes Web3 so energy-intensive, and some of the opportunities for making it more sustainable.

What is Proof of Work (PoW)?

Proof of work (PoW) is a consensus mechanism used in blockchain networks to create new blocks and verify transactions. Consensus mechanisms are key to the blockchain, ensuring the validity and security of the ledger when no central authority can verify transactions or resolve disputes. In PoW, participants must complete a complex mathematical function, or “hash function,” to add the next block to the blockchain. Both Bitcoin and Ethereum, the two largest blockchains, use this approach.

Unfortunately, the very element that makes the blockchain so valuable is the same thing that makes it problematic. Hash functions require a lot of computational power and energy, as miners must be constantly solving puzzles to maintain the integrity of the network. The puzzles require the use of powerful computers to perform a huge volume of calculations. Competition between miners means an ever-increasing amount of computational power is required, and with it, energy consumption. As the network grows and more miners compete to solve puzzles, the puzzles become more difficult, and energy usage grows, too. 

Because of this, PoW has been criticized for its high carbon footprint, leading some blockchain miners to explore alternative consensus models that might offer more energy-efficient models. The most popular alternative being explored today, Proof of Stake, has been implemented in Ethereum. Others have explored using renewable energy sources as an alternative. 

Proof of Stake: Ethereum’s Transition to a Greener Approach

In contrast to PoW, Proof of Stake (PoS) does not require miners to solve complex mathematical puzzles. Instead, participants are selected based on their stake in the network – essentially how much cryptocurrency they hold. The blockchain then randomly selects “validators” to add the next block and earn a reward via transaction fees. Because PoS doesn’t require complex mathematical functions, its energy consumption is considerably less.

But there are drawbacks to PoS, too. Because validators are chosen based on how much cryptocurrency they hold, it can lead to individuals or organizations having a disproportionate amount of power in the network. It can also lead to reduced security in the blockchain: because miners don’t have to perform computational work, multiple forks of the blockchain can be validated without cost. This can lead to validators having no incentive to stay on the main blockchain, if it appears another form will become dominant, leading to instability. 

However, its promise to reduce energy consumption is enough that one of the biggest players in the industry, Ethereum, decided to transition to this model. 

With Ethereum’s transition to PoS, miners have been replaced by validators who secure the network by staking their Ethereum to verify transactions and add new blocks to the blockchain. This change has resulted in a shift in incentives for network participants, as validators are now rewarded for holding and staking their Ethereum, rather than consuming more energy to mine blocks.

Ethereum’s Energy Consumption: A New Benchmark for Blockchain Networks

Thanks to this shift, the energy consumption of Ethereum has dropped by more than 99%, making it one of the most energy-efficient blockchain networks in existence. Ethereum now relies on ETH to secure the network, consuming only approximately 0.0026 TWh/yr.

Ethereum’s transition has inspired initiatives like the Ethereum Climate Platform, which is aimed at reducing carbon emissions from Ethereum’s previous Proof of Work (PoW) mechanism. This initiative, led by prominent tech firms, is focused on funding and promoting the development of real-world projects that will have a lasting positive impact on the environment and society.

Ethereum vs Other Industries and Blockchains

Comparing Ethereum’s energy consumption to other industries, we find that it uses significantly less energy than PoW-based blockchains like Ethereum PoW, Bitcoin, and gaming in the USA. However, it’s important to note that these comparisons are based on estimates, as accurately measuring energy consumption across industries and blockchains can be challenging. Nevertheless, the data available suggests that Ethereum is setting a positive example.

Ethereum’s progress in sustainability has set a benchmark for other blockchains and has sparked a movement toward carbon neutrality in the industry. To further advance this goal, the largest blockchain, Bitcoin, could consider following in Ethereum’s footsteps.

There is increasing global demand for Bitcoin to find a sustainable solution to its energy problem. This demand is driven by several factors:

• Environmental concerns: Bitcoin mining is highly energy-intensive and the majority of energy used for mining is generated from non-renewable sources. This has led to criticism from environmental advocates and increased scrutiny from governments around the world.
• Government regulations: Governments are becoming more aware of the environmental impact of Bitcoin mining and are starting to regulate it. Some countries are even considering banning Bitcoin mining due to its high energy consumption.
• Consumer preferences: Consumers are becoming more environmentally conscious and demanding products and services that are sustainable and eco-friendly. This has put pressure on the Bitcoin industry to reduce its energy consumption.

Debating Bitcoin’s Future: Will the Largest Blockchain Embrace Proof of Stake?

While Ethereum’s transition to PoS has resulted in a significant reduction in energy consumption, Bitcoin continues to consume vast amounts of energy.

But should we expect Bitcoin to transition to PoS – or other, more sustainable, mining options?

At this point, it’s not clear. Transitioning to PoS would require a significant overhaul of Bitcoin’s current system, both technically and socially, too. Bitcoin has a highly established network, and transitioning to PoS would require significant changes to its underlying protocol. 

PoS would disrupt the current economic incentive model, which is both highly successful and secure. This change could decrease trust in the network, and also cause a significant redistribution of wealth.  Of course, PoS itself must be considered: it’s a young, relatively unproven technology, presenting another risk to the Bitcoin community.

Three Potential Strategies for a Sustainable Web3 Industry

While PoS is one solution for reducing the environmental impact of blockchains, it isn’t the only option for sustainable practices in the industry. By exploring other strategies and innovations, Web3 can continue to evolve in a more eco-friendly direction. 

1. Encouraging Miners to Work in Countries with Established Renewable Energy Systems

Blockchain miners could leverage geographical advantages, such as working from countries that rely almost entirely on renewable energy sources. Paraguay, for example, relies predominantly on hydroelectric power, making Bitcoin mining in the country inherently more sustainable with a lower carbon footprint compared to nations dependent on fossil fuels. Genesis Mining, one of the largest miners in the world, operates in Iceland and uses 100% renewable energy sources to mine Bitcoin and Ethereum in the cloud. This not only reduces the carbon footprint of these operations, but also helps to promote the widespread adoption of renewable energy sources in the industry.

2. Exploring Alternative Consensus Mechanisms

As Ethereum’s transition to PoS demonstrates, there are more energy-efficient ways to secure and maintain decentralized networks. For Bitcoin and other energy-intensive cryptocurrencies, researching and considering alternative consensus mechanisms can be a critical step towards reducing their environmental impact. Other models are already being reviewed, such as Proof of Authority (PoA) and Delegated Proof of Stake (DPoS). Of course, these methods would still need to be validated, making alternative mechanisms a longer road. 

3. Offering Incentives for Eco-friendly Mining Practices

To further encourage the use of green energy, new blockchain projects could offer incentives for eco-friendly mining practices through tailored compensation systems. These incentives could take the form of lower transaction fees, higher rewards for mining with renewable energy, or special recognition for sustainable mining operations.

Final Thoughts: Is a Sustainable Web3 Possible?

The Web3 industry is at a pivotal moment in its pursuit of sustainability. Ethereum’s successful transition to a more eco-friendly consensus mechanism has highlighted the potential for digital currencies to reduce their environmental impact. The challenge now lies in encouraging Bitcoin and other energy-intensive cryptocurrencies to embrace similar changes or adopt alternative solutions.