Proof-of-Work and Proof-of-Stake: Comparing the Environmental Impact of Ethereum and Moonbeam

As most crypto enthusiasts know, a blockchain is a database that is maintained and shared across multiple computers that form a single network. For the blockchain to function properly, everyone interacting with it has to see the same data, which means that every computer in the network must agree on each block in the chain and its state as a whole. To ensure that such an agreement can be reached, blockchain needs a consensus mechanism.

There is considerable debate around these consensus mechanisms, largely centered around the energy consumption or efficiency that each brings. This energy consumption is often compared to analog databases and other existing technologies, but equally often isn’t compared to anything at all and instead is viewed as wasteful and a net-negative to global sustainability.

This topic has become even more timely as Ethereum changes its underlying consensus mechanism in an event most commonly referred to as “The Merge.”

This blog will explore these competing consensus mechanisms and demonstrate how they vary in their energy consumption and carbon footprint using the comparison of Ethereum and Moonbeam Network.

Blockchain Basics and Energy Misconceptions

A common misconception about blockchains is that all of them are a huge drain on energy resources that contribute significantly to climate change. Whereas, in fact, this really depends on the consensus mechanism. Not all them are built the same and most are quite efficient. Additionally, these comparisons often forget to take into account the systems these decentralized databases replace and the energy use that is offset.

The two most common consensus mechanisms today are Proof-of-Work and Proof-of-Stake. Generally speaking, Proof-of-Stake networks use around 99% less energy than Proof-of-Work, making them a much more environmentally friendly alternative. To summarize:

Proof-of-Work and Proof-of-Stake

• Proof-of-Work (PoW) and Proof-of-Stake (PoS) are two of the main types of consensus mechanisms
• Both PoW and PoS allow computers to agree on the state of the network and secure it but their implementations are strikingly different
• Proof-of-Stake is fundamentally more environmentally friendly

Proof-of-Work

The Proof-of-Work (PoW) mechanism has been tested over many years and proved itself effective in providing security and decentralization. It is believed to have an excellent track record of being the most secure way of building and maintaining a chain, and the state of the Bitcoin and Ethereum blockchains is a testament to it.

Generally speaking, the Proof-of-Work mechanism aims to provide security to the network by making it exceedingly difficult to predict who will create the next block, which means an individual or organization with malicious intent will have a difficult time inserting a fraudulent block. The majority of the energy in PoW is spent choosing who can author the next block.

Mining Secures PoW Networks

Since blockchain is a decentralized network, anyone can join in and add new blocks to the chain. To do so, one must use dedicated computational power to solve arbitrarily difficult mathematical problems while expending a great amount of electricity.

This process is called mining and the way it works is that miners always have to “work” at a higher rate than the attacker to provide security for the chain. In practice, it means that to outperform a malicious actor, miners ought to have not only highly efficient hardware, since the attacker too can use it, but also have more computational power which often results in higher energy consumption. Ultimately, the miner’s computer must prove that it spent more computing power than the attacker to solve the puzzle to be able to ensure the security of the network by disincentivizing malicious acts on the network.

Proof-of-Stake

Unlike PoW, Proof-of-Stake (PoS) in general does not require individuals to compete in the accumulation of computational power to join the network. Instead, network participants are required to stake their tokens as collateral to be able to validate blocks in the chain.

Unlike PoW, which focuses on making the system difficult to game, PoS focuses on making the system financially disadvantageous to game. The larger and more valuable the PoS, the more prohibitively expensive it becomes to attack it.

Staking Secures PoS Networks

The staking mechanisms differ from chain to chain and the rules to enforce security mechanisms also come in different flavors which we will not go into in this blog. For example, in Ethereum’s Proof-of-Stake, those who want to produce blocks have to become validators in the network by staking ETH, and the hardware that is needed for that is significantly more (about 99%) efficient in terms of energy consumption than PoW.

Though validators perform a similar function as miners(e.g., order transactions, add new blocks to the chain), they do not need to stock physical hardware and, most importantly, do not waste large amounts of computational power. That is because the security of the network is tied to the stake of the participants which means that validators are incentivized to play by the rules. In some cases, if they don’t follow these rules, they can be penalized by slashing part of the stake they bond to become validators. Slashing refers to a penalty where validators and/or stakers lose a portion of staked tokens, and Polkadot is one of many networks to use it in their consensus mechanism.

Moonbeam’s Efficiency Through Polkadot’s PoS Design

The Polkadot Proof-of-Stake system uses a shared security model, which provides an even more efficient consensus mechanism than the typical PoS system. A recent study by Messari confirmed that Polkadot consumes significantly less energy than both PoW and PoS competitors.

Moonbeam is a parachain on top of Polkadot and relies upon the “Relay Chain” for shared security. In practice, this means that blocks produced on Moonbeam’s layer one chain are then passed to the Relay Chain for finalization — parachains are not responsible for finalization. This creates a system where many layer ones operate in parallel, producing blocks as needed to meet demand, but are able to efficiently utilize a shared mechanism for security.

Consequently, Polkadot + Moonbeam is not only much more energy efficient, but because their environmental footprint is quite smaller, it is extremely viable to go a step further and shift towards a carbon neutral network with the addition of carbon offsetting strategies like purchasing carbon credits.

Comparing Environmental Impacts

While both PoW and PoS have their pros and cons, the environmental impact of the former tends to outweigh most of the arguments in favor of the latter. This becomes an even bigger issue as the number of network users grows over the years.

Several articles in respected scientific journals have discussed the environmental impact of Bitcoin mining, forecasting grim consequences to the planet in the long run. However, none of the methods they used seems to produce accurate results, and the question of measuring the destructive effects of PoW remains open. This, however, does not negate the fact that PoW indeed contributes to global warming and has a significant carbon footprint.

Fortunately, by the time the environmental impact of mining became the main criticism of the blockchain from wider academia and media, more and more new and well-established teams had already started leaning towards PoS. One of such teams is Ethereum Foundation, and it is now in the final stages of transitioning Ethereum to PoS and closing the main argument against its blockchain. This comes at a pivotal moment as the energy consumed by Ethereum’s Proof-of-Work consensus has drastically increased in the past two years, as shown in the following graph.

Source: Digiconomist

Environmental Impact of PoW: Ethereum

• Ethereum is in the process of transitioning from PoW to a PoS consensus mechanism
• Estimates suggest PoW implementation consumes around 84.4 TWh per year, where a single Ethereum transaction equals to ~20,000 hours of videos on YouTube.
• The shift to a PoS consensus will reduce their energy consumption by more than 99%.

Digiconomist, a platform that produces indices of digital projects and trends from an economic perspective, publishes one of the widely cited indices both in academic circles and media, indicating that Ethereum consumes around 84.4 TWh per year (at the time of writing). Moreover, they estimated that the carbon footprint of a single Ethereum transaction is equal to 119.68 kgCO2 which is equivalent to watching 19,947 hours of videos on YouTube or 265,252 VISA transactions. While these comparisons are based on estimates, they do reflect a broader picture of the environmental toll of the PoW.

To provide an example of how the environmental impact of PoW is calculated, it is useful to look at its Ethereum Energy Consumption Index. Its calculation methods have been designed with the same set of assumptions as the Bitcoin Energy Consumption Index. The authors deduct the cost of electricity expenses from the mining revenues and convert the USD equivalent of the remaining revenues into kilowatt-hours at the average price per kilowatt-hour. Then they multiply the result by two because Ethereum miners use Graphics processing units (GPUs) while Bitcoin miners utilize application-specific integrated circuits (ASICs). The results are summarized in the following plot-chart, where the relative energy per transaction for Ethereum’s PoS system is so small that it would not show unless we zoomed in.

According to the Ethereum Foundation’s research team, once Ethereum transitions to PoS, it will cut its energy expenditure by more than 99%. Due to the lack of concrete statistics on energy usage or the type of hardware future validators in the network will be using, they made an estimation based on the number of unique addresses that made deposits and the number of servers. In May 2021, they assumed there would be 87k validators in the network, and based on calculations provided by staking infrastructure teams, the Ethereum Foundation concluded that PoS Ethereum will consume approximately 2.62 megawatts, which is roughly what 2100 American households consume per year.

Environmental Impact of PoS: Moonbeam

• Polkadot’s PoS shared security model, which Moonbeam is part of, provides a much more efficient alternative to PoW consensus mechanisms.
• Overestimated calculations suggest that Moonbeam and Polkadot, combined, consume around 0.001% of Ethereum’s PoW consensus mechanism.

To adequately compare PoW and PoS we need to look into the numbers of a fully operational blockchain. For that purpose, we did calculations for Moonbeam, an Ethereum-compatible smart contract parachain on Polkadot. Since Polkadot provides a shared security system to its parachains the energy consumption of Moonbeam is considerably lower than regular PoS blockchains. Thus, we present the energy consumption of both Polkadot and Moonbeam combined with a considerable overestimation.

Polkadot offers a unique value proposition for projects that want to join the network. Instead of spending efforts and resources to maintain an independent network with their “miners,” teams can lease a parachain slot and connect to the Polkadot Relay Chain that is secured by a set of validators. These validators stake DOT tokens and perform two main functions: verify the information in the blocks provided by parachain collators, participate in the PoS consensus mechanism to produce blocks for the Relay Chain, and thus provide a shared security system to all the participants of the ecosystem.

Moonbeam, as a parachain on Polkadot, relies on the Polkadot Relay Chain for its security and has a few collators that inform the validators about the latest state of the network. To compare the environmental impact of PoS compared to PoW we provide the following calculations for the energy consumption of both Polkadot and Moonbeam. Since there are no concrete numbers on the energy consumption of Polkadot, and it is quite difficult to calculate because of various factors that contribute to it, the estimations we provide are approximate and are considered an overestimation.

Let’s assume that Polkadot runs 300 validators and Moonbeam has 64 collators. Taking the technical requirements for running a Polkadot validator and calculating its energy consumption (~350 W), we can roughly estimate that each validator in the network uses roughly ~3 MWh in one year. Consequently, overall, Polkadot validators (300 at the time of writing) consume around ~920 MWh per year. Using the same specs for Moonbeam, and 64 collators at the time of writing, we get ~196 MWh per year. Both combined networks give a total of ~1.12 GWh per year. Note, that only a small fraction of validators are assigned to Moonbeam (at the time of writing, 5 validators per parachain). Consequently, the total consumption is highly overestimated.

Even an overestimation of our calculations shows that Polkadot and Moonbeam together consume around 0.001% of what Ethereum PoW consumes today. Compared to Ethereum’s 84.4 TWh per year, Polkadot and Moonbeam’s energy consumption of 0.00112 TWh is negligible.

Proof-of-Stake is More Environmentally Friendly

Based on the arguments above, PoS is undoubtedly more environmentally friendly than PoW.

To go a step further, many projects that use PoS have taken great efforts to make themselves carbon neutral. They not only modify the consensus mechanism to make it less energy-consuming, but also commit to carbon offsetting by supporting climate change projects. Algorand, for example, uses Pure Proof-of-Stake which does not involve any mining and sponsors projects that tackle environmental pollution. As a result, in April 2021 the team announced that its blockchain became fully carbon neutral. Another example is Near that is striving to become carbon neutral by using Delegated Proof-of-Stake and also supporting CO2-offsetting projects.

Developers and creators are major driving factors in the push for projects to become more environmentally-conscious. Creators in particular started raising concerns about the carbon emission of Ethereum due to the rapid increase of NFT minting and trading in the last couple of years. One such example is a French artist who canceled the sale of his artwork because he calculated that the several seconds it would take to sell 6 pieces of his art would amount to 2 years worth of electricity usage of his studio.

As a response to this outrageous energy expenditure and carbon emission, more than 3,000 artists joined forces to advocate for CleanNFTs (NFTs that are created on PoS). The fact that both the developers of blockchains and the users are not only aware of the environmental toll of the PoW but consciously put effort to push the technology to be carbon neutral is promising.

In this blog post, we compared two main consensus mechanisms that exist today. PoW, while being a pioneer in blockchain technology, has been criticized for its environmental impact. Although currently there are no concrete calculations on how serious its damage is to our planet, PoW does seem to have a greater toll on the environment when compared to its alternative PoS. To demonstrate the drastic difference in the energy consumption each consensus uses, we provided some basic calculations for Ethereum and Moonbeam energy consumptions. As a result, we can say with confidence that PoW’s energy expenditure is considerably more than Polkadot’s PoS’s mechanism, which also includes Moonbeam.