Cambridge, a renowned research institution, has now announced that it will be expanding its research activities to include Ethereum energy data. Previously, the institution focused solely on tracking Bitcoin’s energy consumption. With Ethereum being the second-largest cryptocurrency by market capitalization, tracking its energy usage will provide valuable insights into the environmental impact of the cryptocurrency industry. The move has been hailed as a positive step towards promoting sustainability in the crypto space. It is expected that the research will help raise awareness and understanding of the energy consumption associated with digital currencies, ultimately leading to more informed decisions and policies around sustainability.
Ethereum’s Shift to Proof-of-Stake and the Energy Consumption of Blockchain Networks
Gone are the days when Bitcoin and Ethereum relied on proof-of-work mechanisms for validating transactions. This method involved having computers continuously crunch complex calculations in hopes of winning tokens as a reward. Ethereum, in particular, made a switch from proof-of-work to proof-of-stake last summer. This new method involves transactions being verified by actors that have pledged tokens to a network, usually in the form of staking. According to the Ethereum Foundation, this transition made Ethereum 99.95% more energy-efficient.
However, the energy consumption of blockchain networks remains a contentious topic, and the shift from proof-of-work to proof-of-stake has spawned fresh research on the subject. The Cambridge Centre for Alternative Finance (CCAF), best known for its Bitcoin energy consumption dashboards and research at the Cambridge Judge Business School, recently unveiled its Cambridge Blockchain Network Sustainability Index (CBNSI). The tool explores the environmental implications of the merge while comparing Bitcoin to Ethereum—the two largest cryptocurrencies by market cap. It also marks the organization’s first foray into publishing dashboards for proof-of-stake networks.
Using height as an analogy, the research compares the current energy use of Bitcoin to Ethereum, both before and after the merge. If Bitcoin’s energy use was represented by Malaysia’s Merdeka 118, the second-tallest building in the world at 679 meters, Ethereum’s pre-merge energy usage would have been the London Eye at 135 meters—around five times smaller. To continue the analogy, the post-merge Ethereum network could be represented by a raspberry, or 1.5 centimeters. The index estimates Ethereum’s annualized power consumption as 5.8 gigawatt-hours compared to around 132.2 terawatt-hours for Bitcoin.
However, researchers have noted that electricity consumption doesn’t completely describe the network’s carbon footprint. It fails to capture the greenhouse gas emissions linked to its computing power. The initiative is being conducted in collaboration with staid financial institutions, such as Fidelity, Goldman Sachs, Invesco, Mastercard, and Visa.
The energy consumption of blockchain networks has been a contentious topic for years, but the conversation surrounding Bitcoin’s carbon footprint has heated up over the last month following concerns over Bitcoin mining by the New York Times and an art piece backed by Greenpeace titled “Skull of Satoshi.” When Cambridge’s electricity index for Bitcoin was released in 2019, Cambridge researchers acknowledged that the measure of Bitcoin’s energy use was a “best guess,” explaining it’s hard to measure reliably due to constant fluctuations.
In conclusion, it is important to understand the environmental implications of blockchain networks and strive to make them more energy-efficient. The Cambridge Blockchain Network Sustainability Index is a step towards greater transparency in the energy consumption of blockchain networks and an essential tool to help us create a more sustainable future for the crypto industry.