Energy consumption key to blockchain technology expansion
Blockchain is a database technology that acts as a ledger to record and store transaction information in a continuously growing database. Bitcoin, the digital currency created in 2010, and dozens of other “cryptocurrencies” use the technology as their foundations.
The scope of products derived from its technology expand every day. The importance of the cryptocurrency and the digital asset market will increase in the not too distant future, and the technology has the potential to change our conception of currency. There is an unfortunate downside ingrained in the currencies’ nature: a tendency for large amounts of energy consumption.
Bitcoin and other cryptocurrencies consume a lot more energy than we would expect. Energy consumption will be a major hurdle for a digital infrastructure to clear before it is seen as legitimate and sustainable.
Blockchain technology, and the cryptocurrencies derived from it, are based on different proof algorithms to ensure a consensus in faceless transactions. The energy consumption of each proof algorithm varies. Nevertheless, it lies at the core of the world of digital asset and financial technologies.
For example, Bitcoin, seen as the cryptocurrency that garnered the world’s initial attention to blockchain technologies, uses a protocol called the proof-of-work system.
Although more efficient proof functions were developed since Bitcoin’s creation, it’s hard to reinstate new functions into programming running on older functions. This trend could lead to a negative ultimatum among cryptocurrencies in the future: Do people adopt the currencies that have more archaic consumption patterns but the most legitimacy? Or do they adopt the most efficient cryptocurrency that lacks legitimacy gained with a proven track record?
If they accept the consumption patterns of older cryptocurrencies that operate on inefficient algorithms, it could lead to the potential for digital colonialism — the way mass media creates a new pseudo-empire in underdeveloped countries. If they accept the newest cryptocurrencies running on the newest algorithm, it mitigates that concern but at the expense of certainty in the digital marketplace. Certainty is needed to keep the cryptocurrency from deflating in value.
These differences will always exist and will continue to develop as the financial technologies’ markets grow. That being said, if you were to search energy and blockchain on the internet, the majority of the articles cover ways in which blockchain technology could revolutionize the energy industry. Rarely mentioned is the potential impact the energy industry could play with blockchain technologies in underdeveloped countries.
Countries with the cheapest electricity tend to be poor countries ripe for exploitation. Bitcoin, specifically, requires multiple users to crack codes to verify a transaction as part of the proof-of-work algorithm — consensus verification.
In return, these “miners” can get rewards; such as bitcoins for themselves. There are similar incentives behind most cryptocurrency platforms. This could create incentive to begin new operations or relocate current ones in countries with a fractured electricity infrastructure.
If consensus verification is centralized, it goes against the decentralized ethos at the core of most cryptocurrencies.
Throughout history, poor countries with a surplus of a cheap commodity have welcomed the influx of a certain industry and closely aligned the lifeline of their city, state or country’s economies with that industry’s needs. The cryptocurrency market is no different. If data points were centralized to a particular network in an identifiable location, private interests could influence digital markets.
It is hard to tell whether it would be possible to settle on one type of algorithm to use over a variety of digital currencies. The energy inefficiency of blockchain currencies may just be a necessary evil, but awareness of the industry’s potential negative imperialistic capacity is crucial.
Opinion columnist Nicholas Bell is an MBA graduate student and can be [email protected]