Cryptocurrencies and Pollution

Why are cryptocurrencies and pollution linked, as was reported here and here?

Let’s start by reflecting on how a blockchain works. A blockchain is a number of linked data segments, called blocks, that are signed by a cryptographic function. Each new block contains a link, in the form of that cryptographic signature, to the last block before it, so changeing any block means having to recompute and change every block after that.

As a result, a blockchain is as secure, as hard it is to recompute parts of it.

If it’s very easy to compute the cryptographic signature of one block, then recomputing 2, 10 or even 100 blocks is still easy.

So what happens if the blockchain is not secure? Blocks contain transactions. So when Bob sends Alice some coins,this gets written into a block.

If Bob found a way to recompute this block, he could send some coins to Alice,and then recompute the block to send the same coins to Christine. Or simply delete the spent coins, so that Alice doesn’t have access to them any more. Clearly, this is fraud, and a blockchain that makes fraud easy will not gather a lot of users. Except those that are financially suicidal.

So blockchain security is important. Bitcoin addressed this issue by requiring the cryptographic signature to be very hard to compute. And this difficulty would automatically increase the more people started computing it. This means if a lot of people with a lot of computing power calculate the cryptographic signature, it’s really extremely difficult to come up with a one that meets Bitcoins standards.

If an attacker wants to overwrite, say, the last 3 blocks, he needs to have so much computing resources to recalculate these 3 blocks, plus any that have been calculated in the time it takes him to recalculate, or blocks than all the others working on the regular blockchain combined produced in that time. Because one more clever feature of Bitcoin is that only the longest chain, the one with the most blocks, is the valid Blockchain. Any other chain gets discarded as an attempted fraud. This makes sense, since the chain with the most people committing resources to will be the longest. So right now, such an attack is practically impossible to do, even for the biggest suppliers of Bitcoin computing power. Note that I said practically impossible. Because theoretically, it can be done!

And here comes the downside, the price, of this security: All that computing power requires electricity to run on. How much is a hotly disputed topic. Some say, that right now it’s more than all of Ireland, while others contend that it’s probably 1/10th of that amount. Which is still a lot of electricity, if you think about it.

The people who provide all this computing power are called miners, and get a reward if they are the first to discover a cryptographic signature that meets the requirements and submit the signed block. This reward is currently worth a little less or slightly more than $100,000 (it’s 12,5 Bitcoin) depending on Bitcoins’ price at that moment.

Electricity is mostly produced with fossil fuels. The worldwide energy mix consists of 87{bebb06f271259ca942a7887f5eb25673b4b02ba69cbc6ed6f7a39064dc6657a8} fossils, mostly coal, and some natural gas. According to the Shell 2014 energy report.

So producing a lot of electricity means producing a lot of pollution. CO2, short chain carbon hydroxides, heavy metals, fine particle pollution, you name it.

While Bitcoin has a lot of transaction volume today, about 4,5 billion USD worth in any single day, it’s still a far cry from fulfilling the potential of everyday use peer to peer cash.

If it should fulfill that role, this would mean even more pollution, as a bigger network would mean more people providing computing power and more difficulty in computing the cryptographic signatures.

How can we avoid that pollution? How can we align the desire to build a decentralized future of our money supply, with the demand to leave this planet healthier and better than we found it?

The next section will highlight some proposed solutions:

  • Proof of Stake

Ethereum is the most popular cryptocurrency that plans to implement Proof of Stake, or PoS as crypto-insiders typically write. PoS means blocks can be calculated with minimal computing power, but only by those who hold coins (called having a stake). Basically, who gets to create the next block is decided by a kind of lottery, where every coin held represents a ticket.

Proof of Stake drastically reduces the amount of energy required by the network.

However, as Ethereum shows, it’s notoriously fickle to implement, and has somephilosophical and mathematical challenges that have not been fully adressed.

  • Directed Acyclic Graph coins

A Directed Acyclic Graph is a fancy name for a network that has a direction (is Directed) and at no point creates loops (is Acyclic). It can be depicted somewhat like this:


A directed acyclic graph

As you can see the graph starts on the right, and is directed (to the left), plus there are no loops or meshes in there.

Directed Acyclic Graphs or short DAGs were first proposed as an alternative to a traditional blockchain by IOTA. Lately other coins like Nano or ByteBall have taken up the idea and tailored it to their specific needs.

DAGs promies some significant advantages: Transactions cannot be reversed or overwritten after a very short amount of time. No mining or expensive cryptographic signatures, like in Bitcoin, are necessary, making transactions effectively free.

Since the network can work massively parallel, it can handle more and more transactions per second as the network scales and grows.

Through the lens of pollution: The lack of mining, in the sense of Bitcoin, where computers try to find cryptographic signatures that meet very demanding and stringent criteria, is completely, or to a very large degree, eliminated, making these coins extremely energy efficient.

Instead, the trust is generated by having a few trusted “witnesses” or “captains of industry” that are trusted to confirm the odd block here and there. These are either selected by the developers, or voted on by users. And this is the crux of DAG coins. If just some of these witnesses are malign, the currencies are extremely vulnerable.

Since none of the DAG coins scaled to the size of Bitcoins network, they didn’t receive as much scrutiny. Whether or not these coins will past the test of time and scale remains yet to be proven.

  • Lightning Network

Bitcoin faced crippling transaction bottlenecks repeatedly. Basically, only about 250-500 transactions can fit into one Bitcoin block. And one block is generated on average every 10 minutes. This results in anything between 4-8 transactions per second. Visa supports and needs to handle up to 1,700 transactions per second.

Since Bitcoin miners get paid for including transactions into a block, they choose the highest paying transactions in times of high demand. Bitcoin transaction fees are currently arround $10 for a single transaction on average.

A part of Bitcoins’ core development team became so dissatisfied with the slow and contentious improvement process of Bitcoin, that they create Bitcoin Cash as a result.

Bitcoin Cash enlarged a block to 8x the size of Bitcoin to have 8x the transaction throughput and included a host of other improvements.

Another developer proposed Lightning Network for Bitcoin as way to scale. Lightning would basically have next to unlimited transactions per second for extremely low fees. In Lightning transactions are no longer written into blocks, but cleared inside payment channels between peers. Just the opening and the closing of payment channels are written to the blockchain and incur a transaction fee. If Bob wants to pay Alice and doesn’t already have a payment channel with her, he can route his coins along payment channels until they get to Alice. Very much like domain names get resolved on the internet. The transaction fees would be so low, that even long routes would still be orders of magnitude cheaper and faster than traditional Bitcoin transactions.

Lightning Network has quickly established itself as Bitcoins promise of a bright future, but so far is not ready for public deployment yet.

Also some serious criticism about payment channels has been raised.

  • bitcoinClean

bitcoinClean is a Bitcoin child, a so called hard fork, like Bitcoin Cash. This means that every holder of Bitcoin is also a holder of bitcoinClean. It was released on April 18th, 2018 and allows blocks to be 8x the size of Bitcoin, to allow more transactions.

It also introduces a new concept to cryptocurrencies: The requirement that only renewable energy is used to fuel the computers that generate the cryptographic signatures.

It’s approach to ensure that is ingenious: Since no technical solution to verify the energy supply of miners exist, it relies on a social solution.

Miners need to publish proof that their computers are powered by renewables, and renewables only. Other miners can then inspect and vote on this proof.

If the proof garners enough votes the miner can start to compete for blocks and get his share of the rewards.

Bitcoins’ blockchain allows any kind of data to be stored inside blocks, and some promising ideas have already used this to store anything from contracts to records of service.

bitcoinClean stores the votes miners cast on each other’s proof on the blockchain, which means votes are transparent to read and secured by the same technology that secures Bitcoins’ transactions.

bitcoinClean’s developers find, that while the energy demand for computing power is still the same as with Bitcoin and Bitcoin Cash, redirecting that demand to renewables is actually better than reducing the energy consumption.

Increased demand leads to a better and increased supply, and more innovation.

Many of the renewable energy production techniques are still in their infancy and are plagued by scaling issues and technological problems.

Increased demand might just be what’s needed to help ensure a decentralised and ecological future for our energy supply, as well as our monetary supply.

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