Proof of work cryptocurrencies - a solution or a curse?

The application of technology to solve human societal problems and generate a better quality of life for current and future generations is often an area of debate where there are a mixture of facts and opinions.

Cryptocurrencies are a controversial subject with a mixture of irrefutable facts and subjective opinions mixing to create an intensive debate on the benefit they bring to society and the place they should have in today’s technological landscape.

An irrefutable fact is that the generation of proof of work cryptocurrencies consumes a significant amount of global electrical energy. Current estimates are around 0.5-0.6% of global annual electrical power generation is consumed by cryptocurrency (equivalent to whole country’s energy consumption)^[1,3,6,7,8].

The estimates vary but if cryptocurrency was a country, it would be between the 12th and 30th biggest global electricity consumer. That’s just to run the computing devices to create the currency, it doesn’t include the creation of the hundreds of thousands of dedicated computing devices required to form the necessary data centres in the first place.^[2]

Cryptocurrency electrical consumption is seven times greater than Google’s combined global operations and is the equivalent of 50% of the global data centre electrical consumption which services everything else the IT industry delivers.^[5]

So, there is no doubt, proof of work cryptocurrencies consume vast amounts of electricity during their creation and utilise vast numbers of dedicated computing devices to generate the 100 Exahashes per second (100 Quintillion calculations per second) required to perpetuate the currency lifecycle.^[6,4] In addition, the computing devices used require replacement approximately every 18 months.

They are so optimised for cryptocurrency calculations, they are useless for any other purpose, so are simply dumped and generate more e-waste than many mid-size countries.^[9,13] Global computing manufacturers are now so concerned about the harvesting of their products for purely cryptocurrency mining, which diverts them from their originally intended purpose, they are taking matters into their own hands and introducing Hash limiting methods onto their processing cards to discourage their use.^[15]

At current scale, estimates are that around 100 million people own some form of cryptocurrency. However, the modern global banking system (which is also energy intensive) already serves billions of people worldwide at its current scale.^[7] Do we need them both?

The COVID-19 pandemic has already accelerated the reduction in the use of physical cash, to the extent that only 16% of UK financial transactions in 2020 involved physical cash and nearly 14m UK residents now report they never use physical cash. So, does modern digital banking (in £, $ etc...) make cryptocurrency unnecessary for everyday use?^[10]

Even in countries where the local currency is unstable, it’s unclear whether cryptocurrency would be any better than just using a globally recognised currency like the US Dollar, GB pound, Japanese Yen, etc... as often happens today.

The cryptocurrency would still require some form of exchange mechanism to indicate its relative value to other currencies so just becomes another option rather than a trusted, distributed solution to the issue which spawned its creation: the mistrust of centralised modern banking. Has cryptocurrency become nothing more than a speculative investment rather than having a true future as a widespread, everyday currency?

The biggest question for us is: could this vast amount of electrical energy and colossal computing power be applied to create a more beneficial outcome for human society than another type of currency? If it were all applied to optimising electrical grids to limit waste or to climate prediction models or to nuclear fusion research, or to restart the hibernated SETI project (SETI@home) to analyse radio telescope data^[16] etc... would we all be better off?

For you

BCS members can read the very latest F-TAG technical briefings and reports.

We have to recognise that proof of work cryptocurrencies are a current reality, they can’t be un-invented, and there is a significant amount of sunk investment in their creation. However, with the ever-increasing requirement for dedicated computing devices and associated electrical energy (which the proof of work model requires), we have to consider whether there are significantly better ways of deploying electrical and computing resources.

If the continued expansion of existing proof of work cryptocurrency networks were dis-incentivised by government (maybe not as extreme as an authoritarian ban like in China)^[11], would it encourage the re-deployment of time and energy to areas of human endeavour with greater societal benefit? Would incentivising alternative cryptocurrency mechanisms like ‘proof of stake’^[12] over proof of work improve sustainability to the point where cryptocurrency was far less of an environmental concern?

That could seem a sensible theory, but proof of stake doesn’t uphold the same distributed concept as proof of work. It may be less resource intensive, but it doesn’t align with the reason why proof of work cryptocurrency appeared in the first place, i.e. a highly distributed currency transaction you could almost infinitely trust. Widespread adoption has failed to materialise with attempts by some to reduce their environmental impact by switching to it (e.g. the Ethereum cryptocurrency) so far proving unsuccessful.^[14]

The alternative to some form of legislative intervention to incentivise investment in alternative decentralised consensus mechanisms with far less environmental impact than ‘proof of work’ is to simply let the market decide. If nothing changes and the industry doesn’t invest in alternative mechanisms, then it could mean an uncertain and volatile future for the sustainability and effective long-term use of cryptocurrency.