Originally published on Forbes.com
Ethereum’s shift from proof-of-work to proof-of-stake in what is known as the “Merge” last September promised a more than 99% reduction in electricity consumption. A year later, the impact of this transition on the sustainability of the Ethereum ecosystem remains uncertain.
Before accepting claims that PoS is significantly more environmentally friendly than PoW, it’s crucial to understand how metrics are derived, the underlying assumptions, the appropriateness of the metric in various circumstances, and the availability of reliable data.
Crypto has gotten a bad reputation for supposedly creating an environmental disaster. The White House found in 2022 that crypto assets contributed 0.4% to 0.9% to the total annual global electricity usage, surpassing the usage of individual countries. BitcoinBTC 0.0% is especially scrutinized, due to its power-intensive PoW consensus mechanism and dominant market capitalization. Given that PoS relies on market incentives rather than competition amongst miners running energy intensive computing processes, PoS has been hailed as an environmentally friendly and sustainable alternative to PoW. Ethereum’s co-founder, Vitalik Buterin, claimed the PoS transition would reduce global electricity usage by 0.2% and cut crypto carbon emissions by 99.992%. However, it is unclear whether Ethereum’s PoS really is a sustainable alternative to PoW and whether Buterin’s predictions hold true.
According to the Crypto Carbon Rating Institution, Ethereum’s energy usage and carbon footprint both dropped by 99.99% right after the Merge. This certainly is an impressive reduction. However, the relative lack of reporting on Ethereum’s electricity consumption and carbon footprint in the 12 months after the Merge is concerning. In fact, reports from CCRI show that Ethereum’s annualized electricity consumption and CO2 emissions have been steadily increasing. Per the CCRI, both Ethereum’s electricity consumption and CO2 emissions have increased more than 300% since the start of the Merge.
While Ethereum PoS uses significantly less electricity and emits significantly less greenhouse gasses than Ethereum PoW, the upward trend is undeniable. There are a few plausible explanations. Firstly, there’s the question of using the right metrics. The Cambridge Centre for Alternative Finance, a leading source for crypto sustainability data, states that directly comparing electricity consumption between Bitcoin and Ethereum is challenging and relies on several (potentially unrealistic) assumptions.
Secondly, to evaluate any crypto’s environmental impact, we need to look at the entire ecosystem and not just the miners or validators. It is now relatively easy to become a validator on Ethereum post-Merge without the requirements for powerful mining computers. Ethereum currently has over 800,000 validators running computers and consuming electricity – more than twice the number since the Merge. While each validator may be consuming less electricity than pre-Merge, the sharp increase in the number of validators can contribute to increased total electricity usage.
Moreover, the Merge fundamentally changed the economic incentives and spawned an entire industry pursuing Maximum Extractable Value or “MEV.” MEV is the maximum value that can be produced by including, excluding, or re-ordering the transactions in a block. Pre-Merge and under PoW, MEV was primarily extracted by miners since they control the inclusion, exclusion, and ordering of transactions in a block. Post-Merge, a large portion of MEV is extracted by “searchers,” a new class of actor in the Ethereum ecosystem, “that run complex algorithms on blockchain data to detect profitable MEV opportunities and have bots to automatically submit those profitable transactions to the network,” says the Ethereum Foundation. To an outside observer, the process of running complex algorithms on powerful computers is strangely reminiscent of PoW and the complex algorithms that miners solve.
While it is very difficult to accurately calculate the electricity consumption or GHG emissions of the computers involved seeking MEV opportunities, it is clear that simply focusing on the sustainability of PoS due to the change in how validators write transactions to the blockchain as compared to miners under PoW is short-sighted.
Ethereum’s electricity usage and GHG emissions have decreased significantly since the Merge. However, a blockchain’s consensus mechanisms are not the only ways that a blockchain consumes energy. Given that a blockchain is a foundational technology on top of which many other technologies are built, akin to an operating system, it is important to look holistically at the blockchain ecosystem rather than specific actors when evaluating something as significant as the blockchain’s sustainability and long-term environmental impact. It is important to dig deeper for information, always ask questions, and pressure test assumptions.