“The Bitcoin network, a wildly expensive mistake”

In this post published in partnership with Liberation, computer scientist and mathematician Jean-Paul Delahaye explains to us why the electricity consumption of bitcoin is a major defect which should lead, according to him, to its ban or its replacement by other less energy-intensive cryptocurrencies. .

Once a month, find on our site the Inédits du CNRS, original scientific analyzes published in partnership with Release.

Since the start of the Bitcoin network in January 2009, the tokens issued by the network have seen their value explode: from 0 dollars at the start, each bitcoin token reached nearly $69,000 in November 2021 before falling back to around 30 $000 two months later. In addition to this volatility, which leads some to see in bitcoin only a speculative bubble, another serious defect affects this network: the enormous energy consumption that its operation requires. An absurd consumption that we can today consider as a design error that other cryptoassets have been able to resolve, which are gradually establishing themselves under the names of Solana, Cardano, Polkadot, etc. However, if nearly fifteen thousand cryptocurrencies were born in the wake of bitcoin, it remains predominant with a capitalization oscillating around a trillion dollars, representing approximately 40% of the capitalization of all cryptoassets.

Digital Coal Mines

How does a cryptocurrency work and why can we speak of an error at the heart of Bitcoin? The Bitcoin network was designed by one or more people acting under the pseudonym of Satoshi Nakamoto, but whose true identity is still unknown today. The issuance and circulation of cryptocurrency tokens are operated by a network of computers called “validators” which operate peer-to-peer, in a decentralized manner. Each computer on the network holds a copy of a huge file called a “blockchain”, an account book that records all the movement of tokens from account to account over time. To encourage computers that participate in this network management, an incentive is distributed periodically to those who validate and add new blocks of transactions to the blockchain.

Bitcoin mining machines working in a warehouse in Rockdale, Texas (USA).

In the case of Bitcoin, a block of transactions is added to the blockchain every ten minutes, and the newly created bitcoins (6.25 today) are awarded to the miner who offered the block, which block is validated by others. validators. The designation of the winning validator is done by the proof-of-work method (proof of work, POW). Here, the proof relies on a raw calculation contest, called mining. The validators (or miners) of the network must solve a puzzle of a combinatorial nature; the first to solve it “wins” the created tokens. The problem posed, repeated every ten minutes, requires participants to calculate a certain function: the faster a validator is able to calculate it, the more likely they are to win with each distribution of the incentive. For example, having 5% of the total power of the network gives a 5% chance of winning each competition. Proof of work therefore creates competition between validators which has led them to use specialized chips and spend more and more electricity to make them work.

However, all this energy invested in the manufacture and especially the operation of these specialized machines is used for nothing other than the designation of the validator who receives the incentive. The electricity used to manage transactions on the network has gradually become negligible compared to that used for the competition of calculation. It has been assessed that the ratio between the two is at least 1 to 1000.

From Proof of Work to Proof of Stake

Other blockchains have however deployed a new, much less energy-intensive method of choosing the validator responsible for adding a block: proof of stake (proof of stake, POS). With POS, each validator pledges a sum of money (tokens of the considered cryptocurrency) and their probability of winning the incentive with each distribution is proportional to the amount of this deposit. This pledge can be withdrawn at any time, like money placed in a savings account. Proof of stake is a kind of proof of work where we would recover the investment made to participate, while it is lost in proof of work. In both cases, the system favors those who have significant means to engage, but it is something inevitable to guard against attacks based on the mass creation of false identities. It is important to note that the bulk of the electricity spent by a network using proof of work is not used for exchanges and validator checks, but for the network computing contest.

Cryptocurrencies are traded on online exchanges that are just beginning to be regulated (The Bitcoin Festival, Miami, June 2021).

From year to year, the investments and expenses made by Bitcoin miners to participate in the calculation contest have taken on proportions commensurate with the price of the bitcoin token which, for example, has multiplied by more than 500 between 2013 and 2022. The electrical expenditure of Bitcoin miners can be calculated in several ways. A distinction is made between the “minimum value” of this expenditure, which is calculated based on the most favorable consumption hypotheses, and the “estimated value”, which is based on the presumed expenditure of the mining plants. The minimum value of the expenditure of the Bitcoin network thus reaches today 50 TWh per year, that is to say the equivalent of what six nuclear reactors of average power produce, or 10% of French electricity production. The estimated value is two to four times higher.

Ban bitcoin?

Most specialists believe that the security given by proof of stake is equivalent to that given by proof of work: in fact, for the moment, no cryptocurrency operating with proof of stake has ever been the victim of a successful attack, despite the hundreds of billions of euros they capitalize. Which leads to one conclusion: proof of work is a design flaw.

It is only the support and some lobbying of cryptocurrency holders operating with proof of work that allows their survival. Their high prices maintain the absurd waste and even encourage it. Two solutions are then possible. The first is to ban all cryptocurrencies as China did in 2021, which ended mining in China, but unfortunately also had the consequence of encouraging it elsewhere and in particular in the United States where it became particularly profitable. The second solution, defended for example by Sweden, which would like it to be applied everywhere in Europe, is to prohibit the use of proof of work which is the sole cause of the electric madness of certain cryptocurrencies.

The points of view, opinions and analyzes published in this section engage only their author(s). They do not constitute any position of the CNRS.

To read
The electric madness of Bitcoin“, Jean-Paul Delahaye, For science, No. 484, February 2018, p. 80-85.
Beyond Bitcoin. Introduction to Blockchains and Cryptocurrencies, Jean-Paul Delahaye, Dunod, 2022 (to be published).

Learn more
– on the electricity expenditure of Bitcoin (sites in English):
– on the solution supported by Sweden (French and English sites):

Leave a Reply

Your email address will not be published.