Ethereum's post-Merge energy usage shows how blockchain tech can align with national sustainability goals

The Ethereum blockchain's energy usage initially plummeted more than 99 per cent last year after a change to its architecture, a new report confirms, showing how a new token minting and validation process better aligns with sustainability goals two years after China's crackdown on crypto mining.

Following a change from proof-of-work (PoW) to proof-of-stake (PoS) for creating new ether last September, power demand on the network cratered to 235 kilowatts from 2.44 gigawatts, according to the latest Cambridge Blockchain Network Sustainability Index released on Wednesday. Amid rising usage of the network, energy consumption reached 420,000 kilowatt hours in March, the index shows.

In its report on the index, the Cambridge Centre for Alternative Finance (CCAF) also notes that ether mining appeared to be of much less interest in China than bitcoin prior to the change. During Beijing's crackdown on mining activity in May 2021, the bitcoin network's hash rate, the measure of the network's computational power, was "far more severely" affected than Ethereum's, with each falling 71.1 per cent and 25.5 per cent, respectively.

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Monthly proof-of-stake energy usage for Ethereum leading up and following the merge. This chart shows consumption on the Beacon Chain, a proof-of-stake blockchain that merged with the main Ethereum chain in September 2022. Chart: SCMP alt=Monthly proof-of-stake energy usage for Ethereum leading up and following the merge. This chart shows consumption on the Beacon Chain, a proof-of-stake blockchain that merged with the main Ethereum chain in September 2022. Chart: SCMP>

China was once the world's largest cryptocurrency mining hub owing to its relatively cheap electricity, despite the digital assets being banned in the mainland. The crackdown two years ago briefly pushed measurable bitcoin mining activity in the country to near zero, although later data suggested much of that activity had largely moved underground.

The success of Ethereum's change in reducing energy usage shows how PoS blockchains can better align with green energy goals, which China has championed with a promise to reach peak carbon emissions by 2030 and carbon neutrality by 2060.

Concerns about the energy usage of cryptocurrency mining were widely seen as a potential factor in Beijing's crackdown.

PoW blockchains like bitcoin's are so energy intensive because the process requires hashing, or solving increasingly complex math problems, to add new tokens to the network and verify transactions. With PoS, users "stake" their own tokens, or put up a specified amount as collateral, to verify transactions.

Ether's switch to PoS was teased for years before the stakeholders pushing the change were able to make it stick. The network went through multiple technical changes before the so-called Merge last year, according to the report.

Bitcoin's monthly energy consumption has remained consistently high. Chart: SCMP alt=Bitcoin's monthly energy consumption has remained consistently high. Chart: SCMP>

Until the Merge, Ethereum's entire electricity consumption of 58.3 terawatt hours was more than Switzerland's average annual energy usage of 54.9 terawatt hours, according to the CCAF.

Ether is now estimated to consume 6.56 gigawatt hours of electricity annually, comparable to that of iconic structures such as the Eiffel Tower or the British Museum, the CCAF said.

While the energy usage of Ethereum has climbed over the past several months, the CCAF said that is to be expected as more nodes and validators are added to the network. It is also still a far cry from what it used to consume and what the bitcoin network still consumes, which was 10.3 terawatt hours last month alone, more than 1,500 times Ethereum's annual consumption.

The bitcoin network's annual energy usage of 132.2 terawatt hours could power the entire country of Norway, according to the Cambridge Bitcoin Electricity Consumption Index.

Amid a bitcoin price rally of about 75 per cent this year, the energy-intensive token remains the gold standard in cryptocurrency. However, governments are increasingly trying to balance innovation and sustainability goals regarding digital assets.

Beijing has embraced blockchain technology and is promoting its development in the mainland. But with cryptocurrency illegal there, many projects focus on other uses of distributed ledger technologies.

Meanwhile, Hong Kong's bid to become a regional virtual asset hub has received a nod of approval from mainland officials. A new licensing scheme in the city that goes into effect in June officially sanctions retail investor participation in the market for the first time.

Hong Kong's pro-digital asset stance has led some in the industry to speculate that it could be used as an experimental zone for crypto development in China. Some exchanges with ties to the mainland that fled during earlier crackdowns are looking to get licensed in Hong Kong.

However, Hong Kong will also have to balance its Web3 initiatives with its own sustainability goals. The city has pledged to become carbon neutral by 2050, and it aims to become a green technology and finance centre with new initiatives set forth in this year's budget.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.