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Why does the energy efficiency of different blockchains and tokens vary so much? There are many reasons. One of them is simply the number of users running nodes. Regardless of the blockchain architecture, more validators mean more energy consumption. Another is the output produced by the chain, which can be measured by the protocol’s throughput, among other metrics. However, we cannot overlook a key component: the consensus mechanism.
This blog introduces not only the traditional Proof of Work (PoW) and Proof of Stake (PoS) mechanisms but also newer consensus mechanisms such as Proof of History (PoH) by Solana, Delegated Proof of Stake (DPoS) by Tron, and Hedera’s Hashgraph. When we quantify the energy consumption performance of these mechanisms, we can explore their potential applications and compare their competitiveness in terms of sustainability.
How About a "Greener" Future?
Currently, most research focuses on the energy consumption of PoW and PoS. However, the emergence of new consensus mechanisms highlights a process of exploration. Every consensus mechanism has limitations, and experimentation with alternatives allows the market to test different configurations relying on other processes. Although PoS is significantly more energy-efficient than PoW from an environmental perspective, it still faces challenges such as issues with decentralisation, security vulnerabilities, and governance complexities. New consensus mechanisms offer different possibilities on these fronts, but also at the energy level. We explore this further in the rest of the article.
Energy Efficiency Analysis
1. Proof of Work (PoW)
PoW is known for its high energy consumption due to the computational power required for mining. Bitcoin, the most prominent example of PoW, has been criticised for its substantial carbon footprint. Despite its robust security, the environmental cost can be significant.
2. Proof of Stake (PoS)
PoS offers a less energy-intensive alternative to PoW. Ethereum's transition from PoW to PoS (The Merge) has reduced its energy consumption by over 99.9%, from 21 TWh to a mere 0.0026 TWh annually (Ethereum.org). However, PoS has been critiqued for potential centralisation risks and governance issues.
3. Proof of History (PoH) - Solana
PoH is an innovative approach that timestamps transactions to prove their occurrence in a specific sequence, reducing the need for extensive computational work. By using PoH to support PoSs, this innovation helps Solana to ensure that resources are fully utilised and energy waste is reduced. Unlike some versions of PoS (though other variants like the hashgraph do achieve similar ordering results), which solely rely on validators locking up tokens to secure the network and validate transactions, PoH creates a historical record that proves events have occurred in a specific order. As a result, PoH enables faster transaction processing by organising the sequence of events before they are confirmed by the network, whereas PoS validators need to be selected and take turns to validate transactions, potentially slowing down the process. While it is true that Solana uses more energy than most other PoS networks, it is also handling a much larger volume of transactions, making it more energy-efficient after controlling for throughput.
4. Delegated Proof of Stake (DPoS) - Tron
DPoS improves on traditional PoS by introducing a voting system where token holders elect a small number of delegates to validate transactions. This reduces the number of validators needed, thereby lowering energy consumption. However, this approach can lead to centralisation, as power is concentrated among a few elected delegates.
5. Hashgraph Proof of Stake - Hedera
Hedera's Hashgraph consensus uses a gossip protocol combined with virtual voting to achieve consensus, offering high throughput and low latency and also achieving solid ordering standards. It is designed to be energy-efficient and secure, with lower energy consumption compared to traditional PoW systems (Platt et al, 2021, Ibañez and Rua, 2023).
Conclusion
When diving into the world of consensus mechanisms, it's essential to understand that each comes with its strengths and weaknesses. PoW is secure but energy-intensive as well, making it less sustainable. PoS significantly reduces energy consumption, yet it could lead to centralization and governance challenges. PoH reduces computational waste and speeds up transaction processing, but the total energy usage is higher; additionally, it’s relatively new and still being tested in various applications. DPoS improves efficiency by reducing the number of validators but risks could arise in centralised power among a few delegates. Hedera's Hashgraph offers high throughput and low latency with minimal energy use but its performance with large numbers of validators is still theoretical, as the network is currently yet on its path to full permissionlessness.
To sum up, the difference in energy efficiency between different chains and tokens may come down to the difference in consensus mechanisms. From energy-intensive PoW to more energy-efficient PoS with the risk of centralisation, to Solana's PoH, Tron's DPoS, and Hedera's hashgraph, each mechanism has its advantages and disadvantages. When exploring the energy performance of these mechanisms, we could not only discover their potential for sustainable development but also compare their competitiveness in practical applications. The next time you hear the phrase "blockchain is energy-intensive", you might as well think about consider the consensus mechanism behind it, which is the real key!
