The emergence of carbon trading on the blockchain demonstrates one of the first integrations of a blockchain solution with a ‘real-world’ market to unlock new demand, scalability, and efficiency within a key growth area.
The integration of carbon markets and the blockchain in late 2021 was a watershed moment for both the climate change space and the broader cryptocurrency ecosystem, as it demonstrated a novel technical solution that could accelerate innovation and investment.
This integration has also brought the oft-cited issues around the environmental impact of blockchain consensus mechanisms into sharp focus, as tools used for climate action must be sustainable themselves to stand any chance of mass adoption. Multiple blockchains have presented themselves as candidates to serve as the base layer for carbon markets, with the objective of providing a public good for those looking to take informed climate action. To date, we have seen carbon trading on the blockchain, the broader migration of the carbon market to the blockchain, and the development of other ancillary services (such as carbon bridges, analytics dashboards, and retirement solutions).
To have an informed discussion around the optimal solution for blockchain-based climate solutions, it should be noted that blockchains themselves differ in terms of their sustainability, adoption, and utility. The optimal solution for the base layer of the carbon market must perform well in all these areas; it must be efficient and capable of scaling climate action. As part of this initial analysis, there are three key considerations covered in this paper to inform the understanding of optimal solutions for the climate base layer.
Adoption
Web3 is a nascent sector, with novel solutions and applications still under development; this naturally entails that levels of adoption remain varied. Ethereum is widely acknowledged as the most widely adopted blockchain due to its open and interoperable nature, which has enabled the development of thousands of composable assets, decentralized applications (dApps), and smart contracts across the ecosystem.
Other blockchains have been developed to fulfill other key objectives such as decentralization, efficiency, or to fulfill application-specific needs (such as Axie Infinity’s Ronin chain). Adoption can be measured against key metrics such as ‘TVL’ and ‘Market Cap’.
Utility
Immediately scaling climate action is of utmost importance. In order to properly leverage blockchain solutions and empower them as a scaling solution, it is important to understand their usability and usefulness. Understanding utility can also enable users to understand where bottlenecks may occur (e.g. from there being low numbers of developers available to support with programming, or technical constraints on the network).
Utility can be measured against key metrics such as ‘number of dApps', ‘transactions per second’ (TPS), and the number of ecosystem developers.
Environmental sustainability
While the environmental impacts of Proof of Work (PoW) blockchains are becoming increasingly well researched and understood, emerging blockchains tend to run on other systems such as Proof of Stake (PoS), delegated PoS, or Proof of Space and Time (PoST). These new solutions are understood to maintain network fundamentals such as security and decentralization, at far greater efficiencies than PoW (in terms of cost and energy consumption).
Typical analysis of blockchain emissions should consider the energy consumption of the consensus mechanism, any dependency on Layer 1 solutions (such as Bitcoin and Ethereum), and the embodied carbon of physical hardware that enables the network.
Blockchain solutions
For the purpose of this analysis, two blockchains—Polygon and Chia—are used as comparative examples, as they have positioned themselves as leading solutions for the carbon layer of the blockchain. Bitcoin and Ethereum’s PoW consensus mechanism is introduced to give further context in regard to available blockchain solutions.
Bitcoin and Ethereum
Bitcoin and Ethereum are the two most widely used cryptocurrencies, and use the PoW consensus mechanism. PoW refers to a form of cryptographic proof in which one party (the miner) proves to others (the validators) that a certain amount of a specific computational effort has been expended to secure rewards. The probability of success is proportional to the amount of energy expended.
With greater demand for the network and an increasing token price (and therefore greater rewards), competition has increased and the cryptographic proofs that need to be solved (as proof of doing work) have become increasingly complex. This has led to significant energy consumption from miners vying to accrue rewards and secure the entire network (the energy consumption for these networks is in the order of TWh of power consumption, which translates to millions of tonnes of CO2e per year).
In addition, Ethereum and Bitcoin require significant amounts of physical hardware to run the ‘mining’ programs, which have a carbon footprint from the manufacturing and disposal of the hardware throughout its lifetime.
The significant energy requirements (and associated overhead costs for undertaking transactions on these networks) have meant that PoW has become less desirable for executing high volumes of transactions, and unfit for hosting meaningful climate solutions. Ethereum is transitioning to PoS to increase its efficiency and lessen its environmental impact during 2022.
Chia
Chia is a PoST blockchain that was set up by Bram Cohen in 2017 to demonstrate how PoST can be an effective consensus mechanism in place of PoW. It achieves this by switching out the necessity for heavy computational requirements with storage requirements (in the form of computer hard drives or online space). Chia is an independent blockchain (i.e. it does not have any additional dependencies on other solutions such as Ethereum or Bitcoin for maintaining network security and development). Chia was selected by the World Bank to develop the prototype for its Climate Change Warehouse.
PoST is a cryptographic technique wherein provers show that they allocate unused hard drive space for storage space. In order to be used as a consensus method, Proof of Space must be tied to Proof of Time. Proof of Time ensures that block times have consistency in the time between them and increases the overall security of the blockchain. The spacetime model of Chia depends on 'plotting' (generation of PoST files) to the storage medium to solve a puzzle. Unlike other proof-of-storage cryptocurrencies (e.g. FileCoin), Chia plots do not store any useful data.
Chia has developed its own ecosystem of tokens and its programming language, Chiaslip, to unlock new innovations for the network. As an entirely separate blockchain to Ethereum and other widely used blockchains, there is little transfer of assets across networks, except for the Wrapped Chia (WXCH) asset that can be bridged to Ethereum to participate within DeFi.
Polygon
Polygon is a PoS-based ‘Layer 2’ scaling solution for Ethereum that was set up in 2017 by four entrepreneurs to enable growth of the Ethereum ecosystem at a lower cost and energy requirement than Ethereum Layer 1. Polygon is host to the largest protocols that have facilitated the migration of the carbon markets to the blockchain, including KlimaDAO, Toucan Protocol, Moss.Earth and more recently C3.
Layer 2 blockchains still derive their security from mainnet Ethereum’s PoW consensus mechanism (via a process called checkpointing), where they send batches of complete transactions intermittently to be written onto mainnet. Individual transactions, prior to batching, are validated on Polygon by so-called ‘validators’, which are individuals who are randomly selected to validate a node on the blockchain and ensure that the blockchain has been written correctly.
In order to maximize the likelihood of being selected and minimize any penalties, PoS validators remain ‘on’ constantly. With its random selection approach, PoS does not require heavy energy consumption to solve a complex algorithm (as PoW does) or to allocate unused storage space (i.e. for PoST).
As a network built to be compatible with Ethereum, Polygon is also developed in Ethereum’s native programming language (Solidity), with ERC20 tokens on Ethereum mainnet being able to be ‘bridged’ over to Polygon to interact with dApps and the wider ecosystem via the public bridging system.
Network adoption and utility
Per the above discussion, adoption and utility are key in ensuring that a blockchain solution for the climate can scale and is not inhibited by bottlenecks.
The table below uses key metrics to define Chia and Polygon’s adoption and utility, and provides a comparison between them.
Environmental impact
The analysis of the environmental impact of blockchains consists of two key elements:
1. The electrical consumption required to secure the network (typically referred to as ‘mining’ for PoW, or ‘validating' for networks that use node validators).
2. The embodied carbon of the physical hardware required to run the network (e.g. mining rigs, computers for validating, or other hardware requirements).
The power consumption from PoS is derived from running nodes constantly throughout the year (100 in the case of Polygon). For PoST, energy is required to both validate the network and to create plots for the PoST element of the consensus mechanism.
However, with Polygon’s dependency on Ethereum, it is considered fair to include Polygon's bridging and checkpointing contracts within the analysis of its carbon accounts as follows:
Hence, by summing the carbon emissions associated with Polygon’s activity and comparing it with Chia’s, we see the power consumption of Chia is roughly 30% higher than Polygon.
However, focusing on embodied carbon is a critical element of this analysis. To date, the consideration of embodied carbon has been a relatively poorly researched area. The majority of high-profile reports focusing on PoW elect to only focus on the significant power consumption of such networks. According to the Greenhouse Gas Protocol, which sets out best practice for carbon accounting, the upstream and downstream emissions of a given service should be duly considered within analysis to give a full carbon account of an activity.
The Polygon blockchain uses conventional hardware to provide its network validation across 100 nodes. Assuming a newly purchased HP Elite Desk 800 G6 Desktop Mini PC with a lifetime of five years is used solely for staking activity, the annualized carbon footprint of embodied carbon for this hardware is 11tCO2e/year.
Chia Network’s PoST consensus uses online farming (using Amazon Web Services) and hardware farming (using hard drives). It appears that hardware farming is preferred as it is significantly cheaper than online farming[20]. The table below provides the environmental impact for various levels of hardware-based farming and failure rates. As with Polygon, it is assumed that the hardware assigned to Chia is used solely for mining activities.
The Chia network currently utilizes 27.4EiB (1EiB = 1.15 x 106 TB) of storage to secure the blockchain. Anywhere between 20% to 80% of the blockchain is hosted by miners using Solid State Drives (SSDs) and Hard Disk Drives (HDDs). While SSDs are more environmentally efficient for Chia’s PoST consensus, their failure rate is higher (they can have a lifetime of just six weeks[21]). HDDs on the other hand can fail within 11 weeks of mining the token[22]. Recertified or refurbished drives would have a significantly lower lifetime. There is little self-reported data to indicate the actual ratio of miners using recycled hard drives or new hard drives.
The CO2 footprint of storage devices for different levels of storage and failure rates is given below. It assumes HDDs and SDDs have the same carbon footprint, and that the average size of hard drive used is 2TB. In reality, the average size of hard drive may be lower (due to preferable economics for purchasing smaller drives). The 20%, 50%, and 80% allocations reference different assumptions for the rate of mining that occurs on newly purchased hard drives, compared with server-based mining or refurbished hard drives. For the purpose of this analysis, emissions from server-based mining and refurbished hard drives are set to 0, with further analysis required here to allocate a fair number of emissions to these activities. A detailed analysis of how the carbon footprint was derived for the below table is given in the Appendix.
Hence, if we assume 50% of the network uses storage devices with a 26-week failure rate, the total embodied carbon emissions of the hardware of the network would be 51,238 tonnes CO2e per year. A full summary of the carbon emissions from Polygon and Chia are included below. Based on the assumptions included within this study, Chia is assumed to have roughly twice the carbon footprint of Polygon.
It should be noted that, over time, the storage requirements of the Chia network will continue to increase, proportional to network adoption (as the mechanisms of PoST are similar to that of PoW). For example, Chia is expected to use 1.31TWh[23] of power and 400EiB of storage by 2025[24].
This is in contrast with Polygon, which is dependent on Ethereum. Within the next year, Ethereum plans to go through its ‘merge’ and change its consensus mechanism from PoW to PoS. It is anticipated that this will reduce Ethereum’s operational carbon footprint by 99.99%, and in turn lead Polygon to have an operational carbon footprint in the order of tonnes per year from power consumption.
Conclusion
In terms of overall network utility and adoption, Polygon performs far better than Chia. This is in large part due to the significant development of smart contracts, protocols, and applications on top of Ethereum that have now established themselves on Polygon due to the interoperability of the two networks. The ability to quickly bridge a variety of assets over to Polygon using the Polygon Bridge has enabled Polygon to secure deep liquidity and TVL, which significantly improves its scaling potential in the future as new innovations look to reach the Polygon user base.
While Polygon’s integration with Ethereum does mean that the network incurs a significant carbon footprint from its current dependency on PoW, the total emissions from this power demand are roughly 30% lower than Chia’s power consumption. Chia’s embodied carbon emissions are significantly higher than Polygon’s moderate hardware requirements for its 100 staking nodes.
Chia has positioned itself as a green alternative to Bitcoin. As per an IDC report [25] the goal was to utilize the surplus HDD storage available in the market to build a PoST consensus protocol for crypto mining. However, it would appear that the unabated consumption of hard disk space to provide consensus for a blockchain is not a scalable solution over the long term (similar to the shortcomings of PoW’s unabated consumption of energy).
In addition to the environmental issues associated with the level of hard disk space from Chia, the Proof of Space consensus mechanism has also reportedly caused major disruption of the HDD and SSD market[26][27][28][29], which causes unintended economic impacts across supply chains. These economic impacts are outside the scope of this analysis.
In conclusion, this study serves as a starting point for a deeper analysis of the available blockchain solutions for climate action. The assumptions used in this work are intended to give an indicative comparison between PoS and PoST networks, by using Polygon and Chia as examples. However, more detailed analysis of other networks that do not have a dependency on Ethereum, or that use resource intensive consensus mechanisms (such as PoST or PoW), should also be considered.
Appendix: Chia embodied carbon calculation
As per a 2021 report by Seagate, the total CO2 emissions of an HDD amount to 7.34kg of CO2 per drive [30]. This report is considered for further analysis of annual carbon emissions. SSDs have a similar or lower carbon footprint when compared to an HDD.
In the life cycle of an HDD, 49% of the CO2 footprint is due to the power consumption during its lifetime and 51% is due to manufacturing, distribution and end-of-life process (recycling and waste management). This equates to 3.74kg of CO2 per drive, from manufacturing and eWaste.
A 2TB SSD is considered for the calculation of the carbon footprint, as the price of an SSD beyond 2TB increases exponentially, making it non-profitable to mine $XCG (Chia's token). In theory, there are 100TB SSDs that cost $40,000.
If the complete Chia network with netspace of 27.4 EiB (1 EiB = 1 x 10^6 TB) were hosted on 2TB SSDs, one would need 13.7 million drives and this would produce 51,238 tonnes of CO2.
The CO2 emissions are worse if smaller sized drives (500GB, 1TB etc.) are being used for mining as the carbon footprint is on a per device basis. The smaller the storage capacity, the more the number of devices needed by the network and thus the higher the carbon footprint. Older, refurbished drives would also increase the carbon footprint as they are relatively inefficient compared to the newer, more advanced and eco-friendly storage devices.
References:
[14] https://blog.polygon.technology/polygon-the-eco-friendly-blockchain-scaling-ethereum-bbdd52201ad/
[16] https://blog.polygon.technology/polygon-the-eco-friendly-blockchain-scaling-ethereum-bbdd52201ad/
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