Exploring the Energy Consumption of Blockchains through an Economic Threshold Approach

In the beginning a notion for specialists, blockchain technologies have recently received much public and media attention due to large price fluctuations of several cryptocurrencies. At the same time, it increasingly became clear that the trustless consensus mechanism needed to register new transactions and produce new cryptocurrency, called mining, needs a large, growing, and possibly unsustainable amount of energy. Given growing concerns about this energy consumption, the current paper analyses the different factors that affect the energy consumption of one blockchain, and identifies the best levers for its mitigation. The results confirm that the trustless consensus mechanism based on what is called proof-of-work (PoW) dominates the energy consumption of a blockchain by a wide margin: While it can be responsible for over 100 TWh per year, the storage of the blockchain requires 4-6 orders of magnitude less energy (50 MWh - 4.25 GWh) and the coordination messages sent across the Internet 6 orders of magnitude less (88 MWh). To compute the energy consumption of the PoW mechanism, the paper deploys and develops in detail an economic threshold analysis, which yields a lower - and thus more precise - upper bound for the operational energy of PoW than previous work. It also discusses how such an upper bound becomes a better estimate for the actual energy consumption in times of falling cryptocurrency prices. It finally argues that energy conservation measures must address the PoW consensus mechanism, and discusses possible public and company policies.