Energy efficiency through PoS blockchains like Ethereum!

Last Updated: 17. November 2023By

The advancement of digitalization undoubtedly drives the efficiency of everyday, industrial or administrative processes. Established procedures are made faster and more cost-effective through digitalization and it is only with its help that the complexity of universal data exchange can be kept manageable.

However, the resource intensity and energy consumption for the production and operation of digital solutions also raises questions. This also applies to blockchain technology, whose wild gold rush days, in which the technology was exclusively associated with cryptocurrencies, now belong to the past.

A new guideline entitled „Rethinking Blockchain’s Electricity Consumption – A Guide to Electricity-Efficient Design of Decentralized Data Infrastructure“ was published in collaboration with the Fraunhofer FIT by the German Energy Agency (dena) and shows possibilities how blockchains can be designed more energy-efficiently and used in a more diverse way.

Blockchain is a key technology for more energy efficiency The German Energy Agency takes the view that the use of digital technologies and platforms is crucial for an increasingly decentralized and flexible renewable energy system. In order to achieve the climate goals, these technologies must be as energy-efficient as possible, while at the same time adapted to the specific requirements. The study provides valuable insights both for the diversity of applications of blockchains and for the discussions on their power consumption and benefits.

It facilitates the design of blockchains as energy-efficient as possible and according to the requirements of concrete use cases. On this basis, the climate and environmental impact of a blockchain and its other properties such as performance and IT security can be compared with those of alternative network solutions and a well-founded technology selection can be made.

Blockchains are also a means against the concentration of power of the classic Internet Blockchains are an important digital technology that is seen as a hope for the dissolution of the concentration of power of the Internet, but is also criticized for its energy intensity. Blockchains offer the possibility to manage data in a decentralized, tamper-proof and traceable manner. The distributed and consensual data storage makes it possible to avoid data silos and single points of failure and thus to increase data protection, data security and the reliability of networks. In the area of power consumption, one of the first application cases of the technology is particularly in the focus – the cryptocurrency Bitcoin.

A high resource expenditure is associated with this with the design of the used proof-of-work (PoW) consensus mechanism. The PoW consensus mechanism is a security protocol in which miners (computers) solve mathematical tasks to verify new transactions and add blocks to the blockchain. This process requires considerable computing power and energy, thereby maintaining the integrity of the network and making manipulation of transactions more difficult.

Ethereum is the market leader among PoS blockchains However, there are alternatives to PoW blockchains, in which a different resource is used instead of electricity. An example of this is Ethereum, a decentralized permissionless network that has switched to a proof-of-stake (PoS) consensus protocol. In PoS, so-called validators are responsible for the security and processing of transactions in the network. The validators are responsible for verifying transactions and creating new blocks in the blockchain.

A validator is randomly selected to create new transaction blocks, communicate them to the network and receive certain remuneration for it. Instead of solving complex computing tasks that consume a lot of energy and hardware resources, the validators only have to deposit and stake their Ether (ETH) in the network. This creates incentives for secure network behavior.

Ethereum has reduced power consumption by 99 percent By switching from a PoW to a non-PoW consensus mechanism, Ethereum can reduce the power consumption of the blockchain by more than 99 percent. A path that is now being taken by many blockchain operators. This is also the main goal of the new dena guideline, which recommends avoiding PoW consensus mechanisms as far as possible and designing blockchains according to individual requirements. For this, a good knowledge of the requirements of the use case is necessary, because these significantly influence the selection of the blockchains available on the market. However, the selection of the consensus mechanism is only one of many possibilities to design blockchains energy-efficiently.

The dena guideline presents ten tools that enable an consumption-optimized use of blockchains. Here, not only the influence of the tools on power consumption, but also on the security of the managed data (integrity, availability and confidentiality) and the performance of the network is described in detail.

This facilitates a needs-based design in terms of use case requirements (application cases). A comprehensive collection of guiding questions serves to identify these requirements. The guideline is demonstrated using three application cases (electronic prescription issuance and redemption, green power labeling and self-sovereign identities). For a better understanding of the topic, a model for the power consumption of blockchains is presented for the first time in the publication.

Conclusion: With the Future Energy Lab, dena has created a space on behalf of the Federal Ministry for Economic Affairs and Climate Protection (BMWi) in which digital and energy industries come together. The aim is to test new technologies and regulatory approaches for the electricity, heat and mobility sectors in order to drive the energy revolution, as a pilot laboratory and think tank. The Future Energy Lab serves as a platform to bundle the cooperation of all industry stakeholders and creates a creative space for innovative solution development for start-ups. These developments are to be welcomed, also with regard to the integration of blockchain technology and associated cryptocurrencies such as Ethereum.

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