The blockchain was invented about 10 years ago by anonymous cypherpunk Satoshi Nakamoto. Though the true identity of Satoshi has yet to be uncovered, his idealistic project has achieved worldwide notoriety. Whether or not you personally believe Bitcoin is the future of finance, it is certainly undeniable that the technology is here to stay.
The way Bitcoin’s blockchain works is mathematical and trustless. When you send money to someone, your transaction information is published on an immutable public ledger. In order for transactions to be processed, people with really powerful computers use them to solve complicated algorithms. This is called mining. Once enough of these computers have confirmed your transaction to be true, it goes on the blockchain where it can no longer be removed. Mining is rather complicated, but you can learn more about it here.
The problem with all of this is Bitcoin uses a Proof of Work consensus mechanism to approve transactions. Since the algorithms are so complex, it requires a lot of electricity to maintain. To incentivize the mining necessary to maintain the network, ‘block rewards’ are generated by miners, which is how new Bitcoins come into existence. All of this demands a massive amount of power, an issue that skeptics of Bitcoin are taking fairly seriously.
To create one Bitcoin, you would need to consume as much electricity as the average American hold uses in two years. Beyond that, the network today uses roughly the same amount of electricity as Algeria. This is wildly inefficient, especially when you consider the lengths that data centers go to in order to shave off a few percentages from their electrical costs.
Being decentralized by nature, blockchains are dependant on many individuals, as well as some larger scale mining operations. This doesn’t afford the network the ability to optimize its energy consumption costs. While 80% of data centers are either using or looking to use hot or cold aisle containment systems to reduce energy costs related to keeping their servers cool, blockchains typically don’t have such a central solution. Or do they?
Proof of Stake is hardly new in the cryptocurrency world. It is a much more energy efficient consensus mechanism that involves coin or token holders locking up their tokens to validate new transactions. Ethereum, the second largest blockchain in the world, is planning a gradual switch from Proof of Work to Proof of Stake.
This doesn’t exactly answer whether or not blockchain technology will ever be able to match or exceed the efficiency of data centers. While it doesn’t seem logistically possible for a decentralized network to be more efficient than a centralized one, the technology is still young.