One Ethereum transaction uses enough energy to power a house all day, but how much does the fiat financial system use?
According to Cointelegraph Research’s original investigation into the most energy-efficient blockchains for nonfungible tokens (NFT), the Ethereum network is currently using more energy than Costa Rica does during an entire year. To put this into perspective, a single transaction on Ethereum uses roughly 30 kilowatt-hour, which is equivalent to powering a house in the United States for a whole day. 100 Ethereum transactions is equivalent to driving approximately 390 kilometers in a Tesla Model 3. However, Ethereum’s upcoming move to Eth2 will change all of this for the better.
In contrast, a transaction on Tezos takes 0.0016 kWh or less than the energy required to charge an Apple Tablet for 10 minutes. 100 Tezos transactions is equivalent to driving 10 km in a Tesla Model 3. The energy use of the entire Tezos network is approximately equivalent to two households in the U.S. for the whole year. One question, though, is how competing blockchains such as Tezos, Polkadot and Solana will perform on the market once Ethereum transitions to Eth2.
Blockchain energy consumption has been subject to intense debate. While NFTs are present on several blockchains, the new research report only compared energy consumption on two chains. Energy consumption is directly related to a blockchain’s consensus mechanism, where Ethereum represents proof-of-work (PoW) and Tezos is used as an example of proof-of-stake (PoS).
Download the full report here, complete with charts and infographics.
The results show that the Ethereum blockchain is significantly more energy-intensive than an alternative PoS chain such as Tezos. In 2021, transactions on Tezos have been more than 35,000 times more energy-efficient than those on Ethereum.
When addressing the issue of energy consumption, one, first of all, needs to distinguish transaction costs and the costs of maintaining the network. Naturally, a PoW system such as Ethereum will be more energy-intensive than a PoS blockchain such as Tezos.
The PoW vs. PoS debate
A PoW blockchain network depends on a large number of individual miners contributing to the network’s hash power in order to secure the network. Thus, the energy consumption of Ethereum, for example, is not directly related to the number of transactions. Each transaction only contributes marginally to the total energy consumed.
However, when comparing energy consumption across blockchains, it needs to be scaled by a metric that captures how extensively a network is used. Therefore, the total energy consumption is divided by the number of transactions that a network performs within a day. For Ethereum, the total energy consumption is a product of the average daily hash rate and an estimate for hardware efficiency. Finally, the results are annualized for comparability.
For Tezos, a slightly different strategy was followed, as energy consumption in a PoS network does not depend on hash rate. The calculation comes down to the total energy consumption for each day and multiplying it by the number of active delegates — that is, the number of active bakers by the daily energy consumption of a baker.
The results support previous findings on the vastly different energy consumption of PoW vs. PoS blockchains. It can be estimated that in August 2021, the creation of an NFT on Tezos was roughly equivalent to using a hairdryer for two seconds, while creating an NFT on Ethereum amounted to using it for more than 20 hours.
All about efficiency
For now, the Ethereum blockchain is not as energy efficient as PoS alternatives leaving aside potential security concerns when comparing PoW and PoS blockchains. Thus, minting an NFT on Ethereum appears to be less environmentally friendly compared to less energy-intensive alternatives. However, Ethereum’s move toward a PoS algorithm will likely lead to a substantial decrease in energy usage, which is going to change the situation for the better.
This article is for information purposes only and represents neither investment advice nor an investment analysis or an invitation to buy or sell financial instruments. Specifically, the document does not serve as a substitute for individual investment or other advice.