Solving The Unbearable Cost of Crypto-Currency Mining
The energy consumption of Bitcoin is at a historic high:
- 118 TWh, a power consumption comparable to Netherlands, or 114 TWh according to the Cambridge Bitcoin Electricity Index
- 56 Megatons of CO2, a carbon footprint comparable to Peru
- 11.78 kilotons of e-waste, comparable to Luxembourg
- In March 2020, the average electricity cost to mine 1 BTC was $7000; in January 2021, the cost was $9400, and $13274 taking into account hardware costs.
- The increase is exponential: mining operations cost 5 times more every 4 years, and use 5 times more energy, on average. In other words, the energy consumption of Bitcoin in 2025 will be comparable to Canada or Germany.
A single bitcoin transaction entails:
- 1135 kWh, the power consumption of an average U.S. household over 38.92 days
- 539 kg CO2
- 113 grams of electronic waste
Furthermore, recent research argues that these estimates are optimistic, the real number are likely to be even higher: Bitcoin may consume as much energy as all data centers globally. Another recent paper remind us that Bitcoin accounts for about 2/3 of the total energy demand of cryptocurrency mining.
The root cause of the high energy consumption of Bitcoin is the use of Proof-of-Work as its Sybil resistance mechanism. Many think that Proof-of-Stake (PoS) is the solution to all these problems, but they are only trading off energy consumption for capital: at the end, PoS is as economically inefficient as PoW, because participants must keep capital at stake which incentivises capital hoarding and ultimately leads to lower transaction volume and higher wealth concentration.
Another Mechanism and a New Hope
The selfish behavior of cryptocurrency miners, an ever-increasing number of them competing for the same block reward with increasingly powerful mining equipment, degrades the efficiency of the chosen Sybil-resistant mechanism (PoW or PoS) compared to the ideal one that could be provided with the optimal centralised solution, a concept known as the Price of Crypto-Anarchy and that explains the high energy consumption of Bitcoin.
Fortunately, our novel Sybil-resistance mechanism, Zero-Knowledge Proof-of-Identity, is the first one that obviates the Price of Crypto-Anarchy, implementing the social optimum.