Efficient network design can significantly reduce blockchain's electricity use – report

Blockchain, one of the world's largest electricity consumers, could significantly reduce its power needs through conscious network design, according to a report by the German Energy Agency (dena) and research institute Fraunhofer FIT. "Extreme electricity consumption is not an inherent feature of blockchain technology" and network design with energy efficiency in mind can reduce consumption and carbon emissions, the report, intended as a guide to electricity-efficient design of blockchain systems, reads. For example, the so-called Proof of Work mechanism (which requires significant computing power and is, for example, used by Bitcoin) could be replaced by a mechanism known as Proof of Stake, which requires much less computing power. Ethereum, which also has a cryptocurrency, for example, switched to this mechanism in September 2022 and reduced a blockchain's electricity consumption by 99 percent, according to the report.

Reducing blockchain's electricity consumption would require policymakers to advance standardisation and regulation for the technology, the researchers wrote. For example, they could require metrics on electricity consumption or carbon emissions associated with different blockchains to be made available, so that companies, users and operators could calculate their carbon footprint or compare this to alternative data infrastructures. Additionally, software developers should consider electricity consumption and provide practical guidelines for electricity-efficient network designs.

Digitalisation makes it possible to "keep the complexity of universal data exchanges manageable," which is "crucial for an increasingly decentralised and flexible renewable energy system," dena wrote. Blockchains provide an alternative to the centralized control of data, which can improve data security, availability and network reliability. However, the resource intensity of these digital solutions remains a contentious issue.