While critics have pointed out Bitcoin’s energy consumption is bad for the planet, few have asked whether a scarcity of electricity could be a limiting factor to Bitcoin’s promise.
Many are excited over the possibility that blockchain technology will radically transform economic and social life. At the same time, many are equally passionate about the problems with the current state of the technology. One particularly urgent issue relates to the voracious energy consumption of blockchain technology. While critics have pointed out this is environmental sustainability, less attention is paid to the question of whether a scarcity of electricity could be a limiting factor to the uptake of cryptocurrencies.
Bitcoin’s Massive Energy Consumption
Bitcoin’s purpose — keeping a transparent, tamper-proof, decentralized ledger — depends on a Proof of Work (PoW) verification step. The cost of PoW in electricity and computing time increases along with the value of what is recorded in the ledger. To give a sense of the scale of Bitcoin’s current energy consumption consider the following. Right now, each Bitcoin transaction consumes enough energy to run a moderately expensive house, and everything in it, for nearly a week. On December 31, 2017, one bitcoin transaction consumed as much power as eleven US households per day. On July 31, 2018, one bitcoin transaction consumed as much power as thirty-one US households per day. Currently, Bitcoin mining energy consumption is equal to the energy consumption of the country of Austria. Moreover, as the difficulty of mining increases, energy consumption will increase. By 2019, Bitcoin mining will consume the same amount of energy as the 20th country in the world in energy consumption.
While many have decried the environmental impact of this energy use, few have considered how electricity could function as a limit factor to Bitcoin’s promise. By design, PoW require an enormous amount of computational and electrical expenditures, including removal of waste heat. Moreover, multiple miners or mining pools must work to solve an algorithm, even if only the first to solve it gets the Bitcoin. This wasted computational power is part of each transaction.
A Limit to Bitcoin’s Promise
Critics have pointed to the environmental unsustainability of Bitcoin. However, fewer have noted how Bitcoin’s security hinges on a convergence of the cost of adding transaction blocks (i.e. mining) with the increasing value of bitcoin. In other words, the energy used in this process will go up as the value of bitcoin rises. If Bitcoin continues to grow in uptake under the current PoW model, it will begin to have a significant impact on the world’s coal and oil supplies. This could cause the cost of a kilowatt to rise globally, and with the increasing cost of energy comes increasing mining costs. At what point will this cycle result in a situation where mining is only feasible for a tiny portion of the ultra wealthy, or perhaps for no one at all?
A Potential Solution
The 4NEW blockchain platform aims at addressing cryptocurrency’s sustainability problem. In so doing, it also offers a model for fulfilling Bitcoin’s promise. In effect, 4NEW proposes to tokenize electricity transactions over an “eco-friendly” blockchain powered by powerplants that convert waste into energy. The process of refining waste products into water and organic materials creates energy that can either be sold to national grids or used to operate an onsite mining farm. The mining farms will power the 4NEW blockchain, which is where actors in any industry will be able to transact using the KWATT coin. Powerplants will also be paid for the waste they process and the byproducts of waste processes, such as fertilizer and clean water. These by products can be sold on the market, further ensuring the viability of the blockchain.
KWATT is currently an ERC20 Ethereum based token. However, when the blockchain is complete the token will be swapped for the KWATT Coin, which will interact with the blockchain. The coins are smart contracts that establish a binding relationship between transacting parties and provide a value for each transaction. The blockchain will provide an immutable and auditable journal of all transactions with all parties to each transaction being able to see the same ledger entry and costs of reconciliation.
Bold Vision and Regulatory Reality
4NEW’s plan is incredibly ambitious. However, the difficulty it presents is how it can be realized in practice. In many counties powerplants are not simply free market enterprises that anyone can build. They are heavily regulated by governments and sometimes owned in part in wholly by governments and state-backed corporations. It is difficult to imagine how 4NEW’s plan would fit into this complex regulatory landscape. Perhaps this is simply a failure of imagination in the face of the need for new social processes and institutions premised on blockchain technology. While the “waste to energy model” might sound radical, it could represent one direction for society to move as the uptake of cryptocurrencies and blockchain technology continues to rise.