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The Power of Smart Contracts on the Blockchain

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The Power of Smart Contracts on the Blockchain

The world is waking up to the impressive capabilities of the blockchain.

As a foundational technology that things can be “built on top” of, the potential applications of the blockchain go way beyond just payments or cryptocurrencies. In fact, the blockchain could revolutionize how we interact with intellectual property, capital markets, insurance, healthcare, government, and many other sectors.

Introducing Smart Contracts

In particular, an exciting enabler of blockchain technology is the concept of self-executing “smart contracts”.

Today’s infographic comes from Etherparty, a smart contract creation tool, and it helps provide a welcoming introduction to how smart contracts work on the blockchain.

Smart contracts are going to change everything from the legal industry to the backbone of the stock market.

Here’s how these self-executing contracts actually work.

The Anatomy of a Smart Contract

Smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman. Built upon the blockchain, a smart contract is usually:

  1. Pre-written logic in the form of computer code
  2. Stored and replicated on the blockchain
  3. Executed and run by the network of computers running the blockchain
  4. Can result in updates to accounts on the ledger (i.e. payment for an executed contract)

Using the Ethereum platform, smart contracts can be programmed using basic logic. On the most basic level, they can:

  • Perform calculations (i.e. calculating interest)
  • Store information (i.e. membership records)
  • Send transactions to other accounts (i.e. payment for a good or service)

But most importantly, it is important to know that smart contracts are autonomous. They are not controlled by anyone – instead, they self-execute based on a set of instructions that two parties have agreed to (ie. the code).

Benefits of Smart Contracts

Smart contracts are appealing for a variety of reasons:

  • Autonomy: There is no need to rely on third parties, which could be biased or not have your interests at heart.
  • Trust: Your documents are encrypted on a shared ledger, and all parties can have access to them.
  • Redundancy: Documents are duplicated many times over on the blockchain, and can’t ever be “lost”.
  • Safety: Documents are encrypted, making them near-impenetrable by hackers.
  • Speed: These contracts automatically self-execute, saving you precious time.
  • Savings: Smart contracts save you money by taking out the middleman.
  • Precision: Smart contracts execute the exact code provided, ensuring zero errors.
  • Transparency: For organizations like governments, they could add another level of transparency to dealings.

The blockchain is already a disruptive technology, and with these benefits – the potential behind smart contracts is another facet to be excited about.

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Energy

Visualizing the Power Consumption of Bitcoin Mining

Bitcoin mining requires significant amounts of energy, but what does this consumption look like when compared to countries and companies?

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Visualizing the Power Consumption of Bitcoin Mining

Cryptocurrencies have been some of the most talked-about assets in recent months, with bitcoin and ether prices reaching record highs. These gains were driven by a flurry of announcements, including increased adoption by businesses and institutions.

Lesser known, however, is just how much electricity is required to power the Bitcoin network. To put this into perspective, we’ve used data from the University of Cambridge’s Bitcoin Electricity Consumption Index (CBECI) to compare Bitcoin’s power consumption with a variety of countries and companies.

Why Does Bitcoin Mining Require So Much Power?

When people mine bitcoins, what they’re really doing is updating the ledger of Bitcoin transactions, also known as the blockchain. This requires them to solve numerical puzzles which have a 64-digit hexadecimal solution known as a hash.

Miners may be rewarded with bitcoins, but only if they arrive at the solution before others. It is for this reason that Bitcoin mining facilities—warehouses filled with computers—have been popping up around the world.

These facilities enable miners to scale up their hashrate, also known as the number of hashes produced each second. A higher hashrate requires greater amounts of electricity, and in some cases can even overload local infrastructure.

Putting Bitcoin’s Power Consumption Into Perspective

On March 18, 2021, the annual power consumption of the Bitcoin network was estimated to be 129 terawatt-hours (TWh). Here’s how this number compares to a selection of countries, companies, and more.

NamePopulation Annual Electricity Consumption (TWh)
China1,443M6,543
United States330.2M3,989
All of the world’s data centers-205
State of New York19.3M161
Bitcoin network -129 
Norway5.4M124
Bangladesh165.7M70
Google-12
Facebook-5
Walt Disney World Resort (Florida)-1

Note: A terawatt hour (TWh) is a measure of electricity that represents 1 trillion watts sustained for one hour.
Source: Cambridge Centre for Alternative Finance, Science Mag, New York ISO, Forbes, Facebook, Reedy Creek Improvement District, Worldometer

If Bitcoin were a country, it would rank 29th out of a theoretical 196, narrowly exceeding Norway’s consumption of 124 TWh. When compared to larger countries like the U.S. (3,989 TWh) and China (6,543 TWh), the cryptocurrency’s energy consumption is relatively light.

For further comparison, the Bitcoin network consumes 1,708% more electricity than Google, but 39% less than all of the world’s data centers—together, these represent over 2 trillion gigabytes of storage.

Where Does This Energy Come From?

In a 2020 report by the University of Cambridge, researchers found that 76% of cryptominers rely on some degree of renewable energy to power their operations. There’s still room for improvement, though, as renewables account for just 39% of cryptomining’s total energy consumption.

Here’s how the share of cryptominers that use each energy type vary across four global regions.

Energy SourceAsia-PacificEuropeLatin America
and the Caribbean
North America
Hydroelectric65%60%67%61%
Natural gas38%33%17%44%
Coal65%2%0%28%
Wind23%7%0%22%
Oil12%7%33%22%
Nuclear12%7%0%22%
Solar12%13%17%17%
Geothermal8%0%0%6%

Source: University of Cambridge
Editor’s note: Numbers in each column are not meant to add to 100%

Hydroelectric energy is the most common source globally, and it gets used by at least 60% of cryptominers across all four regions. Other types of clean energy such as wind and solar appear to be less popular.

Coal energy plays a significant role in the Asia-Pacific region, and was the only source to match hydroelectricity in terms of usage. This can be largely attributed to China, which is currently the world’s largest consumer of coal.

Researchers from the University of Cambridge noted that they weren’t surprised by these findings, as the Chinese government’s strategy to ensure energy self-sufficiency has led to an oversupply of both hydroelectric and coal power plants.

Towards a Greener Crypto Future

As cryptocurrencies move further into the mainstream, it’s likely that governments and other regulators will turn their attention to the industry’s carbon footprint. This isn’t necessarily a bad thing, however.

Mike Colyer, CEO of Foundry, a blockchain financing provider, believes that cryptomining can support the global transition to renewable energy. More specifically, he believes that clustering cryptomining facilities near renewable energy projects can mitigate a common issue: an oversupply of electricity.

“It allows for a faster payback on solar projects or wind projects… because they would [otherwise] produce too much energy for the grid in that area”
– Mike Colyer, CEO, Foundry

This type of thinking appears to be taking hold in China as well. In April 2020, Ya’an, a city located in China’s Sichuan province, issued a public guidance encouraging blockchain firms to take advantage of its excess hydroelectricity.

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Cryptocurrency

Cryptocurrency: Redefining the Future of Finance

From Bitcoin to Tezos, cryptocurrencies are reshaping the financial industry. As they rapidly advance, how will current applications impact tomorrow?

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Cryptocurrency: Redefining the Future of Finance

Cryptocurrency is a thriving ecosystem, quietly encroaching on conventional finance’s territory.

Over the last five years, Bitcoin users and transactions have averaged a growth rate of nearly 60% per year. Similarly, private and public investors have deepened their commitment to cryptocurrencies including Ethereum, Ripple (XRP), and Stellar—and a number of others across the industry.

Today’s infographic unpacks a cross-section of cryptocurrencies, stakeholders, and core applications across a sector that’s continuing to grow in importance.

The Evolution of Cryptocurrency

Cryptocurrency has erupted into a $200 billion industry, sparking a wave of global disruption.

At the heart of cryptocurrency is a rich history of innovation. It extends back to the 1980s with advances in the field of cryptography—eventually leading to the technology that forms encryption techniques designed to protect the network.

Since then, a series of key events have continued to shape the sector.

Year
Event
2009Satoshi Nakamoto mines the first Bitcoin on a decentralized network
2011Litecoin launches
2012Ripple is founded
2013The price of a single Bitcoin reaches $1,000
2015Ethereum launches, introducing smart contracts into the crypto ecosystem
2017Over 1,000 cryptocurrencies listed
2017Bitcoin's price rockets past $10,000, reaching a peak just shy of $20,000
2018EOS offers a blockchain-based infrastructure for decentralized apps (DApps)

Now, there are over 5,000 cryptocurrencies in circulation, with many built on innovative applications and use-cases as the ecosystem rapidly evolves.

The Value of Cryptocurrencies

Today, crypto offers cutting-edge advances that are diverse and transformative. In addition, it could also be considered an investment in tomorrow’s financial system—decentralized finance (DeFi).

DeFi is an emerging alternative financial system that is built on a public blockchain, which enables greater accessibility because anyone has the ability to connect to it. Additionally, transactions are publicly visible, enabling greater transparency across the system.

Here is a refresher on some of the practical advantages being applied across cryptocurrencies.

Use CasesNameDescription
PaymentsBitcoin
Ripple (XRP)
Stellar
Dash
Used for purchasing goods without the need of a trusted third-party
Value Storage
Bitcoin
Litecoin
As the total supply of many cryptocurrencies are limited, this scarcity influences their value
Stablecoins
DAI
USDC
GeminiUSD
Digital money that is typically pegged to a currency or commodity, such as gold
Privacy Monero
Zcash
Cryptography, the technology behind crypto, can enable the anonymity of its owners
Digital Ownership
Bitcoin
Ripple (XRP)
Stellar
Can empower those without access to a bank to enter the financial system
Digital Gold
BitcoinBitcoin shares similar attributes to money: a medium of exchange, unit of account, and store of value
Decentralized Apps (DApps)
EOS
Tezos
Ethereum (ETH)
Enable individuals to create apps without a central authority, directly connecting the user and creator

The Key Players in the Crypto Landscape

The cryptocurrency ecosystem is growing rapidly. Worldwide, private and public actors recognize its potential across many domains.

Who are the primary participants in the field today?

Private Actors

  1. Institutional Investors
    Harvard Endowment Fund, Crypto Hedge Funds
  2. Cryptocurrency Exchanges
    Coinbase, Bitstamp
  3. Banks & Finance
    J.P. Morgan, Fidelity Investments, Swissquote
  4. Tech
    IBM, Microsoft
  5. Power & Utilities
    RWE

Public Actors

  1. Governments
    Venezuela
  2. Central Banks
    China, Sweden, Saudi Arabia
  3. Organizations
    Crypto Valley Association, Global Digital Finance

The rising popularity of crypto is bolstering new policies and adoption, as evidenced by the many players trying to break into the space.

The Big Picture:

As crypto continues to gain momentum, its longer-term implications will come into focus. Crucially, its cryptographic foundation sets the stage for future advances in finance.

  1. Privacy
    Anonymized transactions protect users data through cryptographic techniques
  2. Access
    Providing a new financial model for 1.7B unbanked individuals around the world
  3. Efficiency
    Steep reductions in settlement time and efficacy could save consumers $16 billion annually
  4. Security
    Providing immutable, traceable records of security-rich transactional networks
  5. Programmable Money
    Smart contracts could drastically eliminate manual and administrative work⁠— ultimately bypassing them altogether

Rooted in decentralized and autonomous systems, cryptocurrencies are creating second-order effects in the financial world. Ultimately, cryptocurrencies are helping to transform finance as we know it—unlocking countless investment opportunities across the global economy.

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