The question is often raised about the environmental impact of blockchain computing that underlies S!NG’s operations to record and save our customers’ digital assets.
We use the Ethereum network in parallel with IPFS (the InterPlanetary File System) and a high-speed relational database hosted on Amazon Web Services (AWS). The decentralized aspect of Ethereum is very important considering how all other digital aspects of your life are controlled by the government, or your bank, or the company running your phone or social network, etc. And often your data is used against you. In other words, you are the product. In the case of blockchain, the user is in control while others do not have access to one’s information, data, or digital assets unless the user grants permission. The use of Ethereum can eliminate many intermediate steps to transact and travel from creator to end user or customer. We are not taking into account the reduced economic and environmental cost of, say, five intermediaries wholesaling the product as it travels to the end user. We’ll leave that beneficial aspect for calculation on another day.
Ethereum is a proof of work (PoW) blockchain where many thousands of computers review, verify, and store a ‘hash’ of each transaction contained in a block of transactions that are linked to each other (hence the name ‘blockchain’). Under PoW, a fee called ‘gas’ is paid to the verifying computers — aka ‘miners’ — to financially incent them to participate in this decentralized system. The gas fee is awarded to the miner which first completes an algorithmic computation and wins the fee. This ‘mining’ is solely completed to determine who gets the fee. Mining accounts for 99.8% of all energy consumption of PoW systems.
Mining is inefficient as it uses electricity seemingly unnecessarily. The source of that electricity not only produces energy, but also generates emissions that reduce air quality and release greenhouse gases. This electricity usage is expensive, thereby generating high gas fees to record a transaction. That’s the bad news. The good news is that there are both financial and environmental reasons for those who participate in Ethereum to minimize these costs and emissions. Bear in mind that miners are financially incentivized to minimize their electricity costs. In other words, this issue doesn’t suffer from the problem of the tragedy of the commons. S!NG is located in Seattle and virtually all of the miners in the Pacific Northwest run on the locally abundant and cheap hydroelectric power that generates virtually no emissions. The rest of the U.S. is not as fortunate as they typically generate electricity from natural gas or coal powered plants. But mining is a worldwide industry where electricity generation is more in tune with the national snapshot of the U.S., if not worse. Renewables from wind and solar power are decreasing emissions, but the transition away from natural gas and coal will likely take a while. Still, great progress has been made in the past decade.
Is there a more efficient manner to verify transactions and retain the decentralized promise of blockchain? Yes! It’s called proof of stake (PoS). Under PoS the miners ‘stake’ their Ethereum investment and vote to verify blocks based upon relative ownership, comparable to how shareholders vote in corporate matters — one share, one vote. They earn staking fees based on a fixed rate of return that is shared by all stakers, similar to how a bond earns interest, but directly variable based upon the quantity of transactions verified.
There will soon be a new version of Ethereum, called Ethereum 2.0, which employs a combination of PoW and PoS that makes tangible progress and balances these challenges. So help is on the way, but it still feels a little stop-gap to us for now. We expect that this will be greatly improved as time goes by because we believe in human ingenuity and incentives are well aligned financially and environmentally.
In the meantime, how does S!NG minimize our costs and impact? We run full nodes of Ethereum on our own servers to do all the heavy-lifting of creating NFTs and we use the public Ethereum network to create a record of the final transactions. It’s the best of both worlds: vastly lower energy use with all the advantages of the global Ethereum blockchain. This reduces the mining requirement greatly. In our case it’s hard to tell exactly how much, but we estimate a 90% — 95% reduction compared to others. We expect to introduce new features in the future that lessen these costs even further. For example, we may introduce a preference to let the user choose to have their transaction mined during off-peak hours, or select the fuel source for completing the PoW process, or they could use carbon offsets (though we’re not fans of this ourselves — feels like treating the symptoms rather than the cause).
We see great promise in the use of blockchain as a decentralized means of distribution that cuts out all kinds of middlemen and helps you control you. We try to minimize blockchain’s costs, both financial and environmental, in a reasonable manner, but we recognize that much more innovation is required. Still, we believe that great progress is being made and will accelerate as the opportunities and issues of blockchain become more apparent. For our part, we will continue making our best efforts to innovate and bring clever, practical solutions to our customers.
[2] U.S. Energy Information Administration “Electricity in the United States” March 18, 2021
[3] “Electricity Mix” by Hannah Ritchie from Our World in Data
[4] We’re basing this on early tests run on what one of our Co-Founders called “bare metal blockchain.” The gas fees we accumulated in comparison to the transactions we completed were rather enormous. We quickly addressed that problem and eventually arrived at our current configuration. Much more efficient!
