Blockchain’s energy consumption, as portrayed in mainstream media, is controversial and widely misunderstood.  The criticisms are rooted in fundamental misconceptions of proof of work and other elements that underpin a scalable blockchain system such as the BSV blockchain, on which nChain builds its solutions.   

Any discussion of energy consumption by Bitcoin and proof of work should be anchored in the key concepts of data integrity, utility, and block size.  A holistic understanding of these fundamentals not only debunks the myth “Proof of Work is a waste of energy”, but it highlights how the technology rivals incumbent solutions like the Visa payment rail for efficiencies at scale.

The Network and Data Integrity

The BSV blockchain securely records data on a public and transparent global ledger or blockchain.  This ledger cannot be easily altered, rather corrections are made as new entries, providing a perfect audit trail.

A piece of data, the owner of that piece of data, the writer of the data, and who the data is about may be separately recorded in the ledger.  It is important to note that so long as the block-size limit is not binding, the number of transactions a block can contain is unbounded.

By virtue of cumulative and published proof of work, entries in the ledger are so difficult and costly to alter that the embedded data effectively cannot be changed after the fact.

Each entry in the ledger is linked with a timestamp and unique transaction ID, so that events can be retrieved, replayed, or audited with full confidence in the integrity of the data.

Financial rewards are distributed for the honest maintenance and use of the ledger in a global market with a low barrier to entry. 

Proof of Work

Given the ever-increasing amount of data, the spread of information across interconnected networks, and the interchangeable nature of digital data, having confidence that a piece of digital information is what it purports to be presents an increasing challenge.

Without a trustworthy record of historical events, how can we identify the errors or falsities from which misinformation so quickly permeates throughout society?

Proof of work, when used as a public signal of accountability, can be leveraged by blockchains to achieve data integrity.

Proof of work forces competing nodes to effectively make public that they have skin in the game and to thereby signal their honesty, before potentially winning the right to confirm transactions. The amount of work done acts as a proxy for trust because the cost of altering the ledger far outweighs the financial reward for altering the ledger.

The publication of proof of work helps provide the surety that the data we rely upon cannot easily be altered. Importantly, the proof of work required to create a block is independent of the amount of data contained in it.  In other words, the same amount of energy is used to publish one record or one billion records in a single block, making the maintenance of the ledger more efficient with increased usage.

Energy Usage

The energy usage of proof-of-work blockchains is not fully sustainable in their current forms.  The primary reasons are limited uptake of the true utility of such systems and poor resource efficiency.

Utility

Limited uptake of the true utility relates to the overwhelming use of large proof-of-work networks for speculative financial reasons.  At the same time, tracking the control of coins and tokens presents only one form of data exchange that can be facilitated using proof-of-work blockchains. 

In the future, uptake of new software applications and hardware devices will make it possible to bring data integrity to all the information that societies value. 

Peer-to-peer payments transactions, including digital cash issued by a national government, being conducted for a tiny fraction of a penny is an example of the financial inclusion that is possible using the network. 

The COVID-19 global pandemic highlighted the importance of tracking accurate healthcare data to support public services and, ultimately, to save lives.

Of paramount importance is the need to reduce global CO2 emissions by 2030. A transparent and public global ledger can be used to track resources across complex global supply chains in real time.

The list of uses cases is endless and all of these provide concrete benefits to societies and individuals at potential massive scale.

Energy Efficiency and Block Size

Poor efficiency refers to the depletion of natural resources when non-renewable energy sources are used to maintain a ledger that offers little utility.

Part of the solution is to optimise the energy performance and efficiency per block.  To optimise the energy performance of a block, any limit on the amount of information that a block can contain (the block-size limit) needs to be removed.  Recall that the computational power associated with proof-of-work is the same no matter the amount of data or number of transactions that are included.  

Put plainly, the capacity for larger blocks increases the number of transactions that can be processed, and thereby the potential to host large-scale high-utility applications, for a given amount of energy.

Energy efficiency improves with the widespread adoption of renewable energy sources.  A significant challenge for societies lies in the storage and transportation of energy, rather than any fundamental lack of it.  Large amounts of renewable energy are currently wasted in remote parts of the world because of its inaccessibility to the grid.

This otherwise wasted energy can be used locally to power infrastructure that directly delivers benefits, by virtue of a distributed ledger, across the globe.  In essence, proof of work can harvest renewable energy where it is most abundant while adding productive utility to the entire network.

Also, mining operations can be located where they take advantage of renewable energy sources, making them economically viable.  We have seen this with Canadian operator TAAL, who announced a new facility in New Brunswick, Canada, where the energy supply is over 80% non-emitting and over 40% from renewable sources.

Part 1 Conclusion

When discussing the energy consumption and associated emissions of a proof-of-work system such as the BSV blockchain, it is critical that network characteristics, namely the ability to scale and the utility of the information recorded in the ledger, be considered.

Proof-of-work networks are still in their infancy, so notwithstanding the above, there is work to be done to ensure such networks can contribute real-world utility and justify the resources currently going into maintaining, securing, and utilising them.

In part 2 of this series, we will present a comprehensive set of actions that pave the way for more sustainable energy usage by proof-of-work blockchains.

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