The Energy Consumption of the Ethereum-Ecosystem

Abstract

Decentralized Finance (DeFi) and blockchain technology are potential game changers but come with a snag. Indeed, the cloven hoof becomes apparent in the network of cryptocurrencies: the energy consumption of cryptocurrencies presents, without any doubt, an environmental challenge. Traditional methodologies for quantifying this consumption, broadly classified into top-down and bottom-up approaches, have merits and limitations. However, discrepancies between these methods indicate an opportunity for more nuanced and precise analysis. Based on the Ethereum ecosystem, this study first presents a detailed analysis of the split into Ethereum and Ethereum Classic, and seconds the energy consumption consequences of the merge. Leveraging domain knowledge, and profitability thresholds, we estimate Ethereum's pre-Merge energy demand and demonstrate the potential of PoS consensus mechanisms to significantly reduce the energy demands of cryptocurrency networks, contributing to the broader discourse on the environmental sustainability of blockchain technologies.

Keywords: Cryptocurrency, Ethereum, Proof-of-Work, Proof-of-Stake, Merge, Energy