Blockchain technology is changing the business landscape. The distributed ledger technology is steadily growing in use as its scope and application continue to expand. Importantly, however, as companies continue to pursue this technology, it will be critical to understand its energy consumption and associated costs.
Blockchain is a distributed ledger technology that is shared among a network of computers and began as the supporting technology for the cryptocurrency Bitcoin. Among its many features, Blockchain operates on an encrypted “peer-to-peer” basis that eliminates the need for institutional authentication as well as intermediaries such as banks.
Blockchain authenticates digitized transactions. Authentication occurs by network computers processing a complex algorithm that validates transactions resulting in a block of data being added to the chain of previously authenticated transactions. Because the technology is decentralized, numerous computers in the network are operating simultaneously to be the first to validate the next transaction, which requires vast amounts of energy that is generated mostly from fossil fuels.
For example, the current energy expenditure for Bitcoin alone, which is supported by Blockchain technology, rivals the total energy consumption of some nations, e.g., Switzerland and the Czech Republic. For comparison, there are more than 390,000 Bitcoin transactions that occur in a single 24-hour period and it takes 470 Kilowatt-hours to complete a single Bitcoin transaction, the equivalent of powering the average American home for two weeks. Not only does the high amount of energy required to power Blockchain result in relatively high direct energy costs, but because the energy is largely generated from fossil fuels, this could also result in a large carbon footprint. The best data available suggest that the weighted average carbon intensity of Bitcoin is 475 grams of carbon dioxide per kilowatt-hour consumed. Thus, a single Bitcoin transaction using Blockchain technology results in roughly 223,250 grams of carbon dioxide per kilowatt-hour consumed, or the equivalent of burning through two 14-gallon tanks of gasoline in an average American car. While some data suggest that Blockchain is supported by multiple sources of power generation, fossil fuels remain the primary source.
Based on current and available data, the energy requirements of Blockchain transactions are significant. While there is scant data about the sources of energy for such transactions, even in the case of a mixed energy source, it is also likely that the carbon footprint of Blockchain transactions is high. It is not entirely clear that this aspect of the transactions, and in particular their carbon footprint, is being considered fully as firms bring blockchain-based platforms online. Mitigation strategies currently exist, and others are being developed, to lower the energy usage of Blockchain. Companies will need to keep a close eye on these strategies, particularly as policymakers around the world focus intently on energy consumption and carbon emissions for the future.