The beauty of Blockchain is that it’s open, and everyone can see everything. I’m largely comfortable with the pseudonym (not anonymity) that it offers. I have nothing to hide, so transparency of the amount in my account and transactions I’ve made is fine. Even if all the people and companies, that I make payments to, can see this.
There are, however, significant issues with dodgy users, and if the world were to move to exist solely on blockchain, I’m not sure all companies would be interested in disclosing their sales activity, customer details, supplier pricing or account amounts.
Before we consider blockchain’s web takeover, there are some issues that need ironing out.
In order to achieve a functional, trustworthy decentralised payment system, we'd need to improve some efficiencies that blockchain technology does not currently offer.
As an example, Bitcoin still only produces one block per 10 minutes, processes the same number of transactions and operates at exactly the same speed despite the growth in number of miners and transactions processed.
In addition, to increase payments security, it's standard practice to wait 50 minutes more after each new record appears because the records regularly roll back. Now imagine trying to buy a drink using your bitcoins. It would a sobering event to have to queue for an hour at the bar, right?
If you only trust yourself and a set of rules (the software) then you have to validate everything that happens against these rules yourself. That is the existence of a blockchain node. So all computers:
• verify the same transactions in accordance with the same rules and perform identical operations
• record the same thing into a blockchain, and
• store the entire history, which is the same for all of them, for all time.
There is no paralleling, no synergy, and no mutual assistance. There is only instant, million-fold duplication which makes its data storage requirements inefficient. But not storing data in that way reverts it back to the tradition client-server architecture.
If each network node does the same thing, that makes the bandwidth of the entire network the same as the bandwidth of one network node. This makes the Bitcoin network capable of processing a maximum of seven transactions per second — for the millions of users worldwide.
This speed is a concern given the number of daily transactions made (seven-day average was nearly 350,000 on 16 December 2017) is only catering to one in every one thousand people on the planet.
Given the transaction-processing speed, significantly increasing the number of active users doesn’t seem possible. Comparatively, traditional technologies have enabled the processing of thousands of transactions per second and bandwidth can be easily increased, if needed.
This decentralised nature of blockchain seemingly inhibits any authority to shut it down via a centralised server. Because there’s no centralised authority to prevent fraudulent activity, like fake Initial Coin Offerings or money laundering, Bitcoin is mined. According to Investopedia, mining is the process by which transactions are verified and added to the public ledger, known as the block chain, and also the means through which new bitcoin are released. Anyone with access to the internet and suitable hardware can mine bitcoin. The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle. The first miner to solve the puzzle gets to place the next block on the block chain and claim the reward (the transaction fees associated with the transactions in the block, as well as newly released bitcoin).
Mining is based on the miner’s ability to solve the puzzles, so income is not guaranteed. Because of this, miners are merged into pools (on the assumption that it’s better to have a small but stable income than huge but irregular payoffs).
The top four pools of miners include Antpool 15.8%, BTC.top 15.6%, BTC.com 11.3% and F2Pool 8.3%. These four control more than 50% of all computing power processing all our Bitcoin transactions . Gaining access to these four controlling computers would gain someone the ability to rewrite the blocks, double spend bitcoins, depreciate bitcoins…
What makes this even more feasible is that 81% of these pools, along with their computing powers, are located within China. The cost of power is considerably cheaper in China, which makes your transaction fees more affordable, but it also makes it easier to capture them and gain control over Bitcoin.
This is a concern if you’re one of the lucky ones celebrating Bitcoin's incredible price increase of 1,300% (from around USD1,000 to USD14,000) last year.
As the price rises, miners add more computing power to chase new Bitcoins and transaction fees. So the dollar price of Bitcoin is directly proportional to the amount of electricity that can profitably be used to mine it. Since 2015, Bitcoin's electricity consumption has been very high compared to conventional digital payment methods.
While there’s a lot of debate over the actual amount of energy consumed by miners, one estimate indicates 215 kilowatt-hours (KWh) is used by miners per Bitcoin transaction. To put that into context, if the average home across New Zealand and Australia consumes 570KWh per month, then each Bitcoin transfer represents enough energy to run a comfortable home, and everything in it, for almost two weeks. Or, at a minimum, worldwide Bitcoin mining could power the daily needs of 1.3m average homes.
Estimates on data made available on a coal-powered Bitcoin mine in Mongolia indicated that this single mine is responsible for 8,000 to 13,000kg CO2 emissions per Bitcoin it mines, or roughly 24,000 - 40,000kg of CO2 per hour. That means for every hour the Mongolian Bitcoin mine operates, it's responsible for the CO2 equivalent of over 203,000km driven by the average European car. So we'd need a minimum of 10,000,000 trees just to offset the carbon emissions created each hour from this coal-powered Bitcoin mine alone.
Increases in Bitcoin transactions, is reflected in its electricity consumption, and therefore its overall carbon emissions. In the context of climate change, raging wildfires, and record-breaking hurricanes, it's worth asking ourselves hard questions about Bitcoin's environmental footprint, and what we want to use it for.
Can we make cryptocurrencies sustainable?
If this is the current energy consumption of cryptocurrencies, what does the future hold? As more and more people rush to get involved in this new market, the amount of miners will only increase, along with the amount of energy consumed. Is it possible to make cryptocurrencies sustainable?
There are proposed improvements, like SegWit2x, that promise to increase the number of transactions Bitcoin can handle by at least double, and decrease network congestion.
On a smaller scale, there are also some other potential solutions, such as:
On a larger scale:
But without knowing when these changes will take place, for now energy consumption rates are locked in at this high level.
We’re also seeing the rise of cryptocurrencies which have been developed to offset some of these impacts, or return other value back to our communities. You can find out more in finappster’s new section on sustainable companies.
The gold rush on cryptocurrency isn’t showing any signs of slowing down. Even if the bitcoin bubble bursts there will still be energy-intensive mining taking place. It’s not an easy problem to solve, and it looks like it's here to stay.