Crypto’s battle with being green

Crypto’s battle with being green and embracing sustainability is seen as one of the key hurdles that it needs to overcome to achieve mass adoption with consumers. This doesn’t just apply to everyday investors and consumers, but also to larger corporations too that will be concerned with the impact that involvement with cryptocurrencies could have on their ESG credentials and public image.
In this article, we’ll take a look at how big the problem is and what progress is being made… 

How big is the problem?

The big issue is that the process of mining popular cryptocurrencies like bitcoin is very energy intensive. It requires large banks of computers that work to authenticate batches of transactions, akin to solving very complex puzzles. There are millions of these machines around the world contributing to this energy consumption by competing to solve these transactions. What’s more, the more competing, the more complex these puzzles become and the more miners that are unsuccessful, which effectively leads to wasted energy. This energy mining method is referred to as ‘Proof-of-Work’ (PoW) consensus.

It isn’t just the energy used within the mining process either, there’s also an electronic waste impact to consider. This is due to the large amount of mining hardware required to mine, which is often needed to be upgraded to continue to be efficient and compete.

This varies based on the data source you view, but the energy consumption by Bitcoin alone can be compared to fairly large countries as the Cambridge Bitcoin Electricity Consumption Index found, with Bitcoin consuming more energy than the likes of Finland, Belgium, Chile or the Philippines. 

Even some of crypto’s biggest cheerleaders now share these same environmental concerns. This includes Elon Musk whose company, Tesla, used to accept bitcoin as payment and even held a large portfolio of bitcoin. However, back in May 2021, he tweeted: “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel. […] Cryptocurrency is a good idea of many levels and we believe it has a promising future, but this cannot come at great cost to the environment”. 

It isn’t just criticism that has been aimed at crypto, but even blanket bans as we saw in China in 2021, where a ban was issued on cryptocurrency mining with part of the rationale being due to its high energy consumption. However, the Cambridge Centre for Alternative Finance (CCAF) found that in the period from September 2021 to January 2022, China was second behind only the U.S. in their global hashrate (21.1%). This would suggest that there is large underground mining activity despite the ban.

Is any progress being made?

Proof-of-Work Alternatives:
Earlier we covered the energy-intensive Proof-of-Work (PoW) process that is used to mine Bitcoin. However, it’s worth noting that not all cryptocurrencies use this method and there are many that are far more energy efficient.

For example, earlier in the year we saw one of the biggest events in crypto’s history so far: the Ethereum merge. We spoke about this here, but effectively it saw Ethereum move from a Proof-of-Work consensus to a Proof-of-Stake consensus, which doesn’t require as much energy (a predicted reduction of 99.95%). As the second-largest cryptocurrency, it’s predicted that this move to Ethereum 2.0 will have a huge impact over time.

However, it’s not just Ethereum that uses a PoW alternative, there’s also Cardano (Proof-of-Stake), Chia (Proof-of-Space), Nano (Delegated-Proof-of-Stake) and Algorand (Pure-Proof-of-Stake) which are all alternative but more energy efficient consensus methods. 
Whilst it has been some time since a new, major cryptocurrency was launched using proof-of-work and there are many other cryptocurrencies using alternatives, Bitcoin is still by far the most popular cryptocurrency. It’s also extremely unlikely that Bitcoin will move away from Proof-of-Work for a few reasons, such as security, but another is that there’s no leadership structure for Bitcoin.

Therefore, it would require a majority to agree to this significant change and a lot of the Bitcoin community are miners, who would effectively be shooting themselves in the foot financially to vote on such a change. 

The type of energy used:
Is all proof-of-work crypto mining dirty? This depends on what energy is being used to complete the mining activity: namely, renewable or non-renewable energy. It’s argued that a shift to more sustainable energy sources to mine the Bitcoin, including surplus energy that would otherwise be wasted, is one way to improve the overall sustainability of Bitcoin.

For example, Hive Blockchain Technologies is a crypto-mining company that uses 100% green energy to mine Bitcoin. The BMC (Bitcoin Mining Council) which it’s important to note doesn’t cover all bitcoin miners, reported that Bitcoin’s mining uses 59.5% sustainable energy. Regardless of what the actual number looks like, it’s clear a shift to more sustainable energy usage is a step in the right direction. 

Carbon Credits:
Many companies, including those within the crypto industry, will turn to carbon credits to offset their own carbon emissions and reduce their overall carbon footprint. However, there have also been many efforts within the industry to try to improve the carbon credits market.

Unfortunately though, the majority of these efforts have not had the traction they would have hoped for or have failed completely. 
This won’t stop renewed efforts to continue to use blockchain technology to improve the integrity and trust of the carbon credits industry. The latest of these comes from The World Bank and the government of Singapore which are looking to launch a new project called Climate Action Data Trust in September. 

What next?

To conclude, it’s important to note that crypto is a large and multifaceted industry. There will no doubt be examples of greenwashing, but there are signs of progress like the Ethereum merge. We should also acknowledge that whilst Bitcoin was first invested in 2008, we’re still very much in the early stages of crypto so we don’t know yet what the future will hold, but it’s clear that it is in the interest of the industry for this future to become greener, so we’ll await to see how this can be achieved. 

Shared from UHY