Ethereum, one of the biggest cryptocurrencies after bitcoin, consumes massive amounts of energy to run its network. This is despite efforts from its creators to reduce its energy consumption a few years back.
A new report from Digiconomist's Ethereum Energy Consumption Index shows that Etherum experienced a massive spike in energy consumption starting this past January. This was when the most recent crypto boom started to gain steam.
Specifically, the report from the index shows that Ethereum's estimated energy consumption in Terrawatt-hours (TWh) per year has surpassed 40 TWh per year. This is more than double what the cryptocurrency reached during its peak following the previous cryptocurrency boom in 2018.
Ethereum seen as more efficient alternative to Bitcoin
The report comes as many companies are considering Ethereum as a supposedly more energy-efficient alternative to bitcoin. The latter is still the world's biggest cryptocurrency, and the most energy-hungry. (Related: BITCOIN GREENWASHING: No, Bitcoin mining isn't mostly powered by clean, renewable energy, but the cult-like self-delusion of Bitcoin apologists is itself a fascinating science experiment.)
On Wednesday, May 12, Tesla Chief Executive Officer Elon Musk announced that the company would stop the sale of cars using bitcoin due to its energy consumption and resulting environmental impact. The company had previously made waves earlier this year when it announced that it would start accepting bitcoin for its cars, an announcement that helped drive the current crypto boom.
"Tesla has suspended vehicle purchases using bitcoin," Musk wrote on Twitter. "We are concerned about rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel."
"Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment," he added.
Following this, Musk clarified that Tesla would not be selling any of the bitcoin it owned and would use it "as soon as mining transitions to more sustainable energy." More importantly, he stated that Tesla would also look at other cryptocurrencies that use less energy to mine.
Tesla's announcement drove the price of Bitcoin down by as much as 14 percent, according to Coindesk data. This, plus Musk's comments about looking at other, more "energy-efficient" cryptocurrencies, have had some taking a look at Ethereum.
Crypto mining inherently consumes a lot of energy
Cryptocurrencies consume large amounts of energy due to how the system behind the technology, called blockchain, works. To enable cryptocurrency's decentralized, anonymous nature, blockchain technology relies on a large number of computers, both owned by individual users or company's running large server clusters.
As part of the system's decentralized bookkeeping, each computer on the blockchain is tasked with solving a complex mathematical equation. When it eventually solves the equation, it's then rewarded with one unit of the cryptocurrency it's "mining" – the term for the entire process of solving the equation to get the cryptocurrency – before adding to the equation, making it more complex.
The growing complexity of mining for cryptocurrencies means that the whole process requires more powerful computers as more of each cryptocurrency is mined. Even during the early days of cryptocurrency, miners were already using more powerful hardware to mine more efficiently.
It's what kind of hardware is used that can make a difference in how much more energy one cryptocurrency uses than another.
Bitcoin is primarily mined using application-specific integrated circuits (ASIC); these refer to chips that have been designed with one specific purpose in mind, such as mining in the case of Bitcoin. The use of ASICs has led to the much wider industrialization of bitcoin mining.
Ethereum, on the other hand, runs an algorithm called Ethash that's "ASIC-resistant." As such, Ethereum mining is primarily done by using powerful graphics processing units (GPU) that are found in almost every home computer.
On paper, Ethereum does consume much less energy than Bitcoin. According to Digiconomist's Bitcoin Energy Consumption Index, a single Bitcoin transaction consumes 1120.16 kilowatt-hours (kWh), equivalent to the power consumption of an average American household over 38.29 days. It has an annual energy consumption footprint of 115.85 TWh, comparable to the power consumption of the Netherlands.
But Ethereum's energy consumption is still massive. The Ethereum Consumption Index shows that a single Ethereum transaction now consumes 83.5 kWh, equivalent to the power consumption of an average American home over 2.82 days. This means that, over a year, the cryptocurrency now has an annual electrical energy footprint of 46.95 TWh, comparable to the annual power consumption of Hong Kong.
The truth is that even the GPUs used to mine Ethereum (and other cryptocurrencies) also consume a lot of energy. The latest, most powerful GPUs – the ones that miners prefer – can consume anywhere from a little over under 200 to well over 300 watts of electricity when running at full load. This is on top of the additional power that the rest of the computer uses and the fact that computers built for mining can have more than one GPU installed.
Ethereum creator working to reduce energy consumption
Ethereum's massive power consumption was something that was already known to its creator as far back as 2019. Back then, Vitalik Buterin, the Russian-Canadian computer scientist who created Etherum when he was just 18, announced plans to overhaul the cryptocurrency's underlying code.
More recently, Buterin released a technical document detailing new plans to cut the cryptocurrency's energy use even more. This change would switch Ethereum over to a different method of tracking transactions, one that would hopefully use less energy by limiting the need for mining. This new method would instead use validator nodes to do most of the heavy lifting of verifying transactions.
But while the so-called "Ethereum 2.0" is still in development, some are looking to other cryptocurrencies that use less energy than the current Ethereum and Bitcoin.
One such option is Litecoin, long described as the "silver" to Bitcoin's "gold," which uses 18.522 kWh.
Another, even more efficient, cryptocurrency is Dogecoin, which consumes only 0.12 kWh per transaction. This cryptocurrency originally started out as a joke currency back in 2013 but has since gained traction ever since Tesla's Musk expressed support for it, calling it the "people's crypto." Musk's support has led some to wonder if Tesla will switch to it, in favor of Bitcoin.
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