It cannot be denied that blockchain is rapidly gaining ground as a technology that businesses from different industries, which include banking and finance, government, healthcare, accounting and taxation, supply chain, social media, and gaming, are relying on to improve outdated and inefficient systems and processes.
And because blockchain is a relatively new technology that a majority of the world’s population does not understand, many misconceptions and debates have emerged. One of these is whether or not Bitcoin—the pioneer digital currency built on blockchain technology and its first successful application—is energy efficient.
“As more businesses and consumers adopt blockchain technologies, and regulatory requirements towards green and renewable energy continue to become more stringent, it is important to understand the impact blockchain has on the environment—especially related to the energy consumption issue,” a report conducted by MNP, one of the top accounting, tax, and business consulting firms in Canada, on the energy efficiency of Bitcoin implementations stated.
The need for a study on Bitcoin energy efficiency has arisen due to Bitcoin mining using an enormous amount of energy—a large percentage of which comes from fossil fuels that emit hazardous gases that are responsible for global warming, climate change, and air pollution.
This is because Bitcoin mining operates on Proof-of-Work (PoW), a consensus algorithm designed to make competition among miners on the network flourish to incite technological development and improvement, while at the same time ensuring decentralization is maintained.
In PoW, in order to be able to add a new data block on the blockchain, the miner first needs to win against competitors and solve an extremely complex mathematical puzzle. Successfully adding a new block, which is composed of Bitcoin transactions, on the blockchain is how Bitcoin is minted and awarded to miners.
“As new blocks get added, PoW makes it increasingly difficult to change previous blocks because the work to satisfy the PoW mechanism would need to be revisited. The network is powered by node operators [miners], who provide CPU power to the network in exchange for an incentive reward and transaction fees. The node operators are rewarded with amounts of Bitcoin every time they win the right to create a new block and add it to the chain,” the report explained.
Earning the right to process transactions, complete a new block, and add it to the blockchain need specialized mining equipment that can expend a huge amount of computational power, which equates to unusually high electricity consumption.
However, looking at consumption alone is not a measure of energy efficiency. It is properly calculated by looking at what this energy is used for.
“You cannot just look at the power consumption in isolation, you have to look at what is the utility, what is this thing providing and how much power does that cost, and looking at the net metric—not just how much power, which I think is a pretty horrible metric for analyzing this,” Zach Resnick, Managing Partner at blockchain investment firm Unbounded Capital, pointed out during a panel discussion about Bitcoin sustainability during the CoinGeek Conference in Zurich.
And this is what the MNP report entitled “Blockchain technology and energy consumption: The quest for efficiency” has done in comparing Bitcoin implementations BTC, BCH, and BSV in areas of block difficulty, block size, number of transactions, and estimated periodic energy consumption.
The bigger the block sizes, the higher the number of transactions that can be placed in them. Bog blocks are necessary in order to increase throughput, which is the number of transactions per second (tps). This not only measures the efficiency of the network but also determines the fee per transaction—the higher the throughput, the lower the fees.
According to the MNP study, “transactions are the ultimate measure of throughput. The number and size of the transactions in a block will affect the size of the block. BTC has a strictly limited block size approaching 4MB. BCH has a much more permissive limit of 32MB. BSV is unbound by block size. Since mining is what consumes energy, and blocks are the product of mining: the more transactions in a block, the lower the energy consumption per transaction. Similarly, the larger a block can be (measured in megabytes), the lower the energy consumption per megabyte.”
It is like measuring the engine efficiency of a car. For instance, if for every liter of gasoline, a red car can run 4 kilometers(km), a blue car can travel 32 km and a green car can drive 2,000 km, then it is obvious that the green car—pun intended—is the most energy-efficient of the three.
The red car is BTC as it only has 4MB blocks at seven tps, and the blue one is BCH which can handle 32MB blocks at about 116 tps. The green car is BSV as 2GB blocks are currently being mined on its blockchain at over 5,000 tps. Imagine the leaps of difference between the two and BSV.
BSV is more efficient due to block size and the number of transactions (throughput) currently available on the network and the limitations of other protocols. So long as the size or number of transactions on the BSV network exceeds the limitation of the other protocols, BSV is the most efficient in this group,” the MNP report found.
And 5,000 tps is only the beginning. Because the BSV blockchain is capable of unbounded scaling, meaning blocks and throughput will only continue to go up and fees will constantly go down. The Teranode update scheduled to be released early next year will effectively increase throughput to 50,000 to 100,000 tps. And as BSV scales, its utility also grows.
“I think there’s a meaningful chance that when we look back 20, 30 years in the future back to now or over the next five to 10 years, there’s a very good chance that BSV adoption is synonymous with our transition from fossil fuels to renewable energy and potentially the largest driver of that revolution,” Resnick said.