At the start of the year, Italy’s largest utility company Enel SpA was in talks with Swiss cryptocurrency mining startup Envion AG to sell power from wind, solar and other renewable energy sources to the miner, according to a report by Bloomberg. These talks were part of an effort by Enel to assess the growing market of selling electricity to cryptocurrency mining companies who require a large amount of power to run their operations.
Due to the rising interest in cryptocurrency mining globally, and its required electricity consumption, utility companies are increasingly eyeing this sector to acquire new customers. “Enel is particularly interested in understanding how the energy business can benefit from the blockchain technology,” said Leonardo Zannella, head of Enel’s global front trading department, in January.
However, this interest appears to have backfired on Envion as Enel ultimately decided not to provide it energy and said in a statement that it has “no interest whatsoever in selling power” for the purpose of cryptocurrency mining, according to a report published in early February by Reuters. “Enel has undertaken a clear path toward decarbonisation and sustainable development and sees the intensive use of energy dedicated to cryptocurrency mining as an unsustainable practice that does not fit with the business model it is pursuing,” the company stated.
Government-owned Enel is one of Europe’s leading renewable energy-focused utility companies with a clear focus on clean energy production to offset the climate change crisis caused by non-renewable energy production.
As cryptocurrency mining uses a substantial amount of energy to maintain blockchain networks that use the proof-of-work consensus mechanism, which requires substantial computing power, it should come as no surprise that the green energy-focused utility company has decided against pursuing cryptocurrency miners as a new customer base.
Bitcoin mining and energy consumption - debate rages
So what is the reality of crypto mining energy consumption? According to data estimates by Digitconomist, the Bitcoin network's current estimated annual electricity consumption per annum stands at 47.4 TWh, roughly equivalent to the annual energy consumption of Singapore. This, in turn, equals to 0.21 percent of the world’s total energy consumption, which means that the Bitcoin network consumes more energy than 159 countries.
However, not everyone agrees with Digiconomist’s estimates. According to CNBC, Stanford University lecturer Jonathan Koomey said: "I would not bet anything on the bitcoin thing driving total electricity demand. It is a tiny, tiny part of all data center electricity use." Koomey also highlighted that there are many assumptions that go into Digiconomist’s model and claims it is fundamentally flawed as it uses estimates of miners revenues and expenses as opposed to hard data.
"Any time you do that, you introduce multiple layers of error and uncertainty. It's a completely unreliable way to do the analysis, and no credible energy analyst would ever do that," he told CNBC. Christian Catalini, an assistant professor at the MIT Sloan School of Management who studies cryptocurrencies, shares Koomey’s view and said: "Many of those calculations that you see today I think are based on very weak assumptions. I don't think anybody can make a credible claim about the current electric power use for bitcoin mining without actually having data from the miners."
Regardless of the accuracy of certain Bitcoin network energy consumption predictions, the reality is that bitcoin mining in its current state is not environmentally friendly and that needs to change. If not, bitcoin miners could face more pushbacks from environmental agencies, NGOs and governments with a green agenda.
Cryptocurrency mining is not just bitcoin
A further aspect that needs to be discussed when talking about the energy consumption of cryptocurrency mining is that bitcoin now only makes up around 35 percent of the entire cryptocurrency market. However, the majority of the almost 1,500 digital currencies available today use the power-intense proof-of-work mechanism to secure their networks. This means that the energy consumption from cryptocurrency mining globally is substantially higher than those discussed by experts for the Bitcoin network.
Of the top 15 cryptocurrencies, almost half utilize the proof-of-work consensus algorithm to process and verify transactions, including Ethereum, Bitcoin Cash, Litecoin, Monero, and Ethereum Classic. And, as the combined market capitalization of these altcoins exceeds that of bitcoin, the energy consumption of these blockchain networks need to be taken into consideration when assesses the global impact of cryptocurrency mining.
Green energy mining and alternative consensus mechanisms
It is not a surprise that many cryptocurrency miners, such as Envion, are now looking to utilize green energy to power their operations so that blockchain networks can be supported without contributing to environmental damage. Through the use of renewable energy sources wind, solar or hydropower, bitcoin mining can become more eco-friendly.
A more environmentally friendly option altogether, however, are cryptocurrencies that use alternative consensus mechanisms to proof-of-work that do not require high energy consumption to process transactions such as proof-of-stake.
Whereas proof-of-work requires miners to use substantial computing power to verify and process transactions for which they are then rewarded in new coins, the proof-of-stake consensus mechanism uses network participants’ “staked” coins to run the consensus. Hence, it does not require any cryptocurrency mining hardware. Instead, the members of the network who stake the most coins will receive the most new coins for their contribution to secure the network.
In 2014, the digital currency NXT was the first coin to purely use proof-of-stake. Since then several others have followed, including Reddcoin, OKCash, and the popular privacy-centric coin PIVX. Moreover, Ethereum developers are working on switching the Ethereum network from proof-of-stake to proof-of-work.
Given the unsustainability of cryptocurrency mining, it is likely that many future cryptocurrency networks will opt for a more environmentally friendly consensus mechanism such as proof-of-stake while bitcoin miners will likely increasingly opt for green energy solutions.