The Inevitability of Escalating Energy Usage for Popular Proof-of-Work Cryptocurrencies

Abstract

Few financial market innovations offer the opportunities to enhance transaction efficiency, as does the potential of the blockchain and cryptocurrencies. The author demonstrates that this industry's unusual demand and supply relationship results in ever-increasing energy consumption if Proof-of-Work currencies rise in price faster than mining rewards decay. This previously undocumented challenge poses global warming risk. In addition, the accessibility and opacity of many cryptocurrencies create financial risks for inexperienced speculators. Digital currencies also reduce the ability of central banks to conduct monetary policy and challenge regulatory authorities to promulgate rules to protect the economy and consumers. The author explores these various risks, demonstrates how the design of Proof-of-Work cryptocurrency mining frustrates the efficiency they promise and describes mechanisms that would allow cryptocurrencies based on the blockchain to live up to their immense potential.