Just over 13 years ago a paper entitled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’, penned under the pseudonym Satoshi Nakamoto, quietly appeared on the internet. It immediately transformed the view of crypto enthusiasts from one of perceiving cryptocurrencies as being mostly toy implementations confined to research labs, to practical financial instruments that could be used to challenge the monetary policy of governments and their central banks.
Bitcoin was to cryptocurrencies as the world wide web was to the internet, through the development of which the general populace could easily participate in the system.
Bitcoin ushered in a new era of decentralisation, in which all participants in the system collectively verified monetary transactions and securely added them to a public blockchain without the need for a central coordinating authority, thereby bypassing the banking system.
To ensure that transactions are added to the blockchain correctly, and that malicious users cannot tamper with the transactions once they have been accepted by the system, bitcoin uses an innovative incentive mechanism whereby mining nodes compete to solve a hard cryptographic problem known as the proof-of-work (PoW), receiving newly minted bitcoins as a reward. This process occurs on average every 10 minutes.
In 2009, when the system was first launched, the reward for adding a new block of transactions to the blockchain was 50 bitcoin. The system was designed such that the total number of bitcoin that could be mined was capped at 21m and the reward was halved very four years.
Back then, 50 bitcoin was worth less than a dollar. At present, the number of bitcoin rewarded for solving a new block stands at 6.25, which would today be worth about $250,000.
In 2010, the first public transaction was by a bitcoin enthusiast who bought a Papa John’s pizza for 10,000 bitcoin, or $25. Today, those same bitcoin would be worth over $360m. That pizza seems very hard to stomach in hindsight!
In 2024 we will again see a halving of the reward to 3.125 bitcoin, and from 2140 only transaction fees will apply.
The average amount of electricity required per transaction is currently 300KWh, and the network consumption could reach 7.67GW in the future. This would easily outstrip the energy consumption of Ireland, which stands at 3.1GW.
With electricity consumption only going up and the number of newly minted bitcoin going down, it is hard to see how the world’s most famous cryptocurrency is going to survive in the long run.
The main culprit behind this huge consumption of energy is the PoW consensus algorithm, which is used to securely lock-in transactions into the blockchain. Although many other consensus algorithms have been proposed, PoW is the most widely trusted and secure algorithm in use today.
One can visualise the PoW process as a 100m dash, where each participant expends a large amount of energy to reach the finish line but there is only one winner. The energy used up by the other race participants simply goes to waste.
In our research group at Trinity College Dublin (TCD), we have been looking into mechanisms to improve the energy efficiency and throughput of blockchains. We began by asking ourselves the question: What if one could see the progress of the other participants in the mining race?
Going back to our 100m dash analogy, if we are in a race in which one of the participants is Usain Bolt and before we can get out of the blocks we see that Bolt is already halfway down the track, then at that point we should immediately concede defeat. If there are other races with less illustrious competitors than the world’s fastest sprinter in them, then we should move to one of those races where we may have a better chance of winning.
In practical terms, we could have multiple parallel blockchains over which we can distribute the miners so that we can make better use of their computational power in solving more blocks. This in turn will speed up the transaction throughput of cryptocurrencies such as bitcoin and help to reduce the overall energy consumption of the network.
Our work in TCD involves making use of the idea of ‘checkpoints’, whereby each active miner in a race will broadcast their intermediate results to the rest of the network.
For example, if we have a PoW target value of 40 leading zeros and 100 miners in the system, we expect miners who reach one-eighth of the target value to publish their solutions and proceed to the next round. If, for example, only 20 miners were able to reach the intermediate target then the remaining 80 miners would be eliminated from that race. Those 80 miners could try their luck on one of the other chains being mined in parallel in the system.
Given the energy crises currently gripping Europe and the pressing issue of climate change right at our doorstep, we urgently need to have a serious conversation about decarbonising cryptocurrencies.
By Dr Hitesh Tewari
Dr Hitesh Tewari is a Funded Investigator at ADAPT and an Assistant Professor in the School of Computer Science and Statistics at Trinity College Dublin. His primary research interests are in the areas of network security and applied cryptography.
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