The Energy Footprint of Blockchain Consensus Mechanisms Beyond Proof-of-Work (2109.03667v6)

Abstract: Popular distributed ledger technology (DLT) systems using proof-of-work (PoW) for Sybil attack resistance have extreme energy requirements, drawing stern criticism from academia, businesses, and the media. DLT systems building on alternative consensus mechanisms, foremost proof-of-stake (PoS), aim to address this downside. In this paper, we take a first step towards comparing the energy requirements of such systems to understand whether they achieve this goal equally well. While multiple studies have been undertaken that analyze the energy demands of individual Blockchains, little comparative work has been done. We approach this research question by formalizing a basic consumption model for PoS blockchains. Applying this model to six archetypal blockchains generates three main findings: First, we confirm the concerns around the energy footprint of PoW by showing that Bitcoin's energy consumption exceeds the energy consumption of all PoS-based systems analyzed by at least three orders of magnitude. Second, we illustrate that there are significant differences in energy consumption among the PoSbased systems analyzed, with permissionless systems having an overall larger energy footprint. Third, we point out that the type of hardware that validators use has a considerable impact on whether PoS blockchains' energy consumption is comparable with or considerably larger than that of centralized, non-DLT systems.

• The paper presents a theoretical model to estimate per-transaction energy consumption for Proof-of-Stake (PoS) blockchains, finding PoW systems are two to three orders of magnitude less efficient.
• Energy consumption varies significantly among PoS systems, with permissioned networks like Hedera using less energy than permissionless ones like Algorand or Cardano.
• Recommendations highlight the importance of validator hardware configuration for energy savings and the need to balance decentralization with energy efficiency in PoS system design.

An Analysis of the Energy Footprint of Blockchain Consensus Mechanisms Beyond Proof-of-Work

This paper, authored by Moritz Platt et al., provides a comparative paper of blockchain systems focusing on their energy consumption, specifically targeting Proof-of-Stake (PoS) as an alternative to the widely criticized Proof-of-Work (PoW) mechanism. The research stands out for its methodical approach to addressing the energy demands of distributed ledger technology (DLT) systems, which have become a critical concern in the context of climate change. The paper examines the energy efficiency of several PoS-based blockchains relative to PoW systems, aiming to uncover if PoS can indeed deliver on its promise of reduced energy consumption.

Methodology and Findings

The paper introduces a theoretical model to estimate the energy consumption per transaction of PoS blockchains by analyzing validator nodes' power requirements and throughput factors. This model diverges from previous research by focusing on per-transaction energy consumption rather than the entire system's power usage. The systems analyzed include six notable blockchains: Ethereum 2.0, Algorand, Cardano, Polkadot, Tezos, and Hedera, selected for their significant market presence and PoS consensus mechanism.

1. General Observations:
   • PoW, specifically Bitcoin, demonstrates an energy consumption per transaction that is two to three orders of magnitude higher than any PoS-based system analyzed. This stark disparity underscores the critiques surrounding Bitcoin's sustainability.
2. System Variability:
   • There are pronounced differences in energy consumption among PoS systems. Hedera, a permissioned network with fewer validator nodes, exhibits considerably lower energy usage compared to permissionless systems like Algorand and Cardano, largely attributable to permissioned networks’ ability to restrict node numbers.
3. The Impact of Validator Hardware:
   • The configuration and energy efficiency of validator hardware are pivotal. Recommendations for validators often lack uniformity, thus standardizing guidance on appropriate hardware is suggested to assist operators in making energy-efficient choices.
4. Correlation Between Validator Numbers and Throughput:
   • The paper identifies a correlation between the number of validators and throughput. For PoS systems, validator numbers and transaction volume appear positively correlated, suggesting that systems with more validators may naturally have higher throughput.

Implications

The implications of these findings are multifaceted. The paper illustrates the urgent need for transitioning traditional PoW systems to PoS to mitigate their environmental impact. For practitioners, the recommendation to carefully consider hardware configurations can lead to substantial energy savings. Furthermore, while permissioned systems might appear favorable in terms of energy consumption, they risk undermining decentralization principles—hence, balance and scrutiny are necessary.

Future Research Directions

Several avenues for future exploration are identified:

• Refinement of the proposed consumption model to incorporate diverse factors beyond throughput affecting energy demands.
• Expansion of analysis to include energy consumption across non-validator nodes and associated ecosystem services to present a holistic sustainability view.
• Application of benchmarking frameworks for empirical validation of mathematical models within permissioned networks.
• Exploration of impacts from transitioning networks like Hedera from permissioned to permissionless.

In summary, while the paper provides a comprehensive view of energy consumption across various PoS blockchains and confirms their efficiency relative to PoW systems, particularly Bitcoin, it leaves room for further investigative inquiries into the optimum balance between decentralization and sustainability. Understanding these dynamics will be crucial as blockchain technology continues to evolve amidst global climate imperatives.