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Ethereum Is Already Using a Small Country's Worth of Electricity

Posted in Business on 9th Jul, 2017 03:27 PM by Alex Muller

Digital currency ethereum's massive price spike has sparked an online gold rush. The price per token has topped $300 lately, soaring from around $10 at the outset of 2017. Amateur miners worldwide are jumping into the action from home, using computer graphics cards to generate new ether.

This mining frenzy has a side effect: Ethereum is now consuming a small country's worth of electricity.
A new real-time index from Alex de Vries, founder of cryptocurrency analysis site Digiconomist, shows that each ethereum transaction could now represent as much as 45 Kilowatt-hours (kWh) of electricity spent mining. That's about as much juice as the average American household uses in a day and a half. For comparison's sake, De Vries has estimated that a Visa transaction requires 0.00651 kWh. The entire network could be using as much as 4.2 Terawatt-hours (tWh), or slightly more than the country of Cyprus.
Just like bitcoin, ethereum mining doesn't come for free. As the price of the cryptocurrency goes up, it becomes more profitable to throw more computing power at mining, which generates new ether. Graphics cards are relatively energy-hungry components, and with scores of them now in the mining game, the currency's electricity bills are starting to add up.
Before we go further, it's worthwhile to note two things. First, ethereum doesn't only process transactions; you can program smart contracts with it that could add extra value-for-electricity. Second, ethereum has a plan to change its mining that could drastically reduce its power needs, if it works.
Unlike bitcoin, ethereum has a plan to transition away from its current energy-intensive mining algorithm, Proof of Work, towards a new hybrid model incorporating Proof of Stake. This would certainly decrease electricity demands: Put very simply, under the new protocol, ether holders would mine just by having their computers connected, said de Vries. If ethereum switched to a full Proof of Stake algorithm, "energy consumption would become negligible," he offered, consuming little more power than the thousands of desktop computers that would already be switched on.
Until the transition plan is up-and-running, ethereum's appetite for electricity will continue to be tied to its price (18 million new ether are created each year, and miners will mine for them using as much electricity as the price supports).
Cryptocurrencies are inefficient by design. Their decentralized nature demands a way to establish trust between strangers on the internet, and for technical reasons the best answer we seem to have developed so far is to back blockchains up with enormous amounts of electricity and computing power.
Is the juice is worth the squeeze? That depends on our opinions on a wide range of issues: economic freedom, the value of authority, and the immediacy of climate change, to name a few. It's also a question for ethereum's developers and community as they take their platform forward. If ethereum is the economic revolution they say it will be, let's hope they choose wisely.

Tags: BlockchainEthereumbusinessonlineinternet

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