Can crypto go green?

As cryptocurrency becomes more widely adopted, its energy consumption and its impact on the environment increase. Is there a more sustainable future for blockchain?

It’s increasingly evident that cryptocurrency isn’t merely here to stay – it’s on the rise. Now, with 300 million crypto owners globally, it’s achieved even greater legitimacy.

Bitcoin still accounted for 66 percent of the total market capitalisation as of 2020. As a proof-of-work cryptocurrency, it requires enormous amounts of energy to perform the complex computations associated with mining.

For example, Bitcoin requires 122.87 terawatt-hours of electricity every year, which is more than the Netherlands or Argentina consume. Similarly, Ethereum, which is making steps to becoming a proof-of-stake currency, requires 99.6 terawatt-hours of electricity – more than the Philippines.

At Web Summit 2021, we were joined by Tezos co-founder Kathleen Breitman, Bitgreen founder and CEO Adam Carver, and Thesis general manager Laura Wallendal, to discuss sustainable solutions and how decentralised currency can be made possible without exacting a much higher cost on the planet.

Proof-of-work v proof-of-stake

One of the keys to envisioning a greener future for crypto is understanding the difference between proof-of-work currencies and proof-of-stake currencies.

Kathleen offered her definition, saying, “in proof-of-work, the ledger is secured by a bunch of different actors, basically consuming energy in order to solve a puzzle that the ledger tosses out. And, in proof-of-stake, basically, the onus of validation of the ledger falls to people who own tokens in the network, running specialised software”.

The issue, from an environmental standpoint, is that proof-of-work needs to demonstrate high energy consumption to show that the validation has taken place.

Proof-of-stake requires far less energy to operate, as holders of crypto are responsible for validating the blockchain by putting up a take of the currency they hold, running simple software, and avoiding the need to expend large amounts of power with high-consuming computer hardware.

Kathleen is optimistic about crypto moving towards proof-of-stake in future, saying, “proof-of-work is effectively a gen-one technology … no new project seems to launch with proof-of-work”.

Adam told us that “virtually every major blockchain protocol that is launched since 2016 or 2017 has either launched on a proof-of-stake mechanism or some hybrid,” and also stated that “we’re so focused on this first prototype of the broad market blockchain, which is Bitcoin, and that’s kind of like criticising automobiles based on the inefficiencies of the internal combustion engine in the Model T”.

While proof-of-stake does appear to be less impactful on the environment, it has not yet been proven on the same scale as proof-of-work currencies such as Bitcoin or Ethereum.

Video: Blockgeeks

Is the problem crypto, or energy production?

The issue with high energy consumption in crypto mining lies in the fact that energy grids themselves are reliant on fossil fuels for power. Crypto mining tends to take place in countries where energy is cheap – the two leading nations are the US and Kazakhstan, where power infrastructures are dominated by non-renewable energy.

“The other variable, the other lever that can be pulled here, is actually shifting the electricity grid – and specifically the grid that the mining pools are plugged into – toward more cleaner, lower-emission forms of electricity,” said Adam.

If crypto were mined using specifically green or renewable energy, its impact would be significantly lower.

Adam further argued that the decentralised nature of crypto means that investors could choose the manner in which their coins are mined: “I think if we look out 10 years from now, the hash rate of the Bitcoin mining pool that is currently using fossil fuels will drop dramatically, and I think will be below 50 percent. And renewables and low-emission will be higher.”

He added, “I actually think that there will be mechanisms for individuals to route their Bitcoin transactions to mining pools that have lower emission. And, when that happens, hypothetically, you would see a bifurcation in the price of Bitcoin, where some Bitcoins are greener”.

What can crypto do for the environment?

Advocates of decentralised currencies argue that the positive effects of crypto go beyond just its energy consumption or footprint. There is an opportunity to use crypto for good by broadening the number of people who are able to participate in impact investing.

Laura said: “When we’re thinking about the environmental impacts of Bitcoin, it’s less of a factor. And what’s more of a factor is the impact that this is making globally.”

She stated that crypto affords its users the opportunity to have a greater say in how their money is invested, saying, “How do you move your money and transact in a way that shows your values? … How do we harness that and bring it to these other chains, so that you can really interact in a much better, much more sustainable, much greener, and much more community-owned and -governed way?”

“Cryptocurrencies and blockchain technology are actually generating an enormous amount of new ESG [environmental and social governance] value in the world,” said Adam.

He added that “a lot of impact investing, or the preponderance of it, is actually kind of jammed up in banks and international funds. That prohibits individuals … who own crypto or other currencies from participating. Blockchain actually creates that access”.

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