By now almost everyone has heard people talk about how much energy mining bitcoin consumes. Just to power a single BTC transaction takes over 2,264 Kilowatt-hours (kWh) worth of electricity – enough to boil 1,500 kettles. But it’s not just bitcoin that has this problem. Other cryptocurrencies that also utilize the same proof of work (PoW) consensus mechanism face the same issue.
As a growing number of investors place more value on companies that emphasize environmental, social and governance principles (ESG) – especially the environmental part – makers of cryptocurrency may soon have to answer the question: Is it possible for crypto to go green?
A shift toward a greener cryptocurrency industry
Increasing awareness of crypto’s energy consumption, pressure from highly influential people like Elon Musk (who halted bitcoin payments at Tesla due to the crypto’s environmental impact) and crackdowns in major countries like China are pushing the crypto industry to adapt.
In response to these events, new and existing blockchain projects are exploring everything from migrating to less energy-intensive validation systems to exploring renewable energy-based mining. Ethereum is perhaps one of the most prominent examples of a leading cryptocurrency project that is transitioning from PoW to a proof-of-stake (PoS) system, with an aim of reducing its overall energy consumption by 99.95%.
Unlike PoW, PoS selects validators based on how many of the project’s native tokens they lock away in a staking smart contract. The more tokens a person locks away, the greater the chance they have of being picked by the protocol to add new data to the blockchain.
Similar to mining, chosen validators receive an amount of newly minted tokens as a reward for their participation. One of the biggest benefits to this system over crypto mining is the hardware requirements are significantly lower, meaning more people can become validators. This, in turn, increases a project’s decentralization and further improves the network’s security. It also has the added benefit of reducing the amount of energy required to power the network.
Read More: What is Proof-of-Stake?
There are also growing financial incentives to improve the carbon footprint of cryptocurrency as environmental policies weigh heavier in investors’ decision-making process and regulators increase their focus on crypto energy use.
Can crypto become more sustainable?
Developers and crypto advocates are making efforts toward sustainability for the blockchain and crypto ecosystem. Organizations like the Crypto Climate Accord, for example, are working toward a goal of having all blockchains powered by renewable energy by 2025, and have even produced a 32-page audit document for tallying the environmental impact of cryptocurrency. In a recently released report, the Bitcoin Mining Council surveyed 32% of its network and claimed its users were mining with a 67% renewable energy mix.
Several factors affect the sustainability and environmental impact of a cryptocurrency. Energy use is one of the most often cited, but it isn’t just a matter of which cryptocurrency uses the most power. You also have to take into account what combination of sources that power comes from.
How many mining operations are powered by renewable energy sources, if any? What validation system do they use? How much physical equipment is required to mine new coins?
Renewable and repurposed power for mining
Mining operations like Equinor and Crusoe Energy have repurposed unused conventional power plants or excess gas from drilling that usually gets burned off to power mining operations. Critics have pointed out, however, that this doesn’t eliminate harmful emissions – it just transfers them to a different industry and could incentivize further drilling.
There have also been attempts to use solar or wind farms to power mining entirely with renewable energy. Houston-based tech firm Lancium, for example, announced plans to pour $150 million into renewable mining plants in 2022. And while this is laudable in theory, it might not be financially possible to construct renewable plants to power a cryptocurrency that could unexpectedly plummet in value. Bitcoin’s value tends to stay high even as it swings, but other cryptos might not be able to justify the cost of entirely new energy plants simply to mine them.
To address these shortfalls, the makers of new crypto and blockchain systems are looking to more energy-efficient designs instead.
Which cryptocurrencies are environmentally friendly?
Some newer cryptocurrencies have incorporated renewable energy into their operational model, pairing it with alternative validation methods to create a token that uses a lot less energy than its predecessors.
Cardano is a PoS cryptocurrency built on a peer-reviewed blockchain, developed by one of the co-founders of Ethereum. People buy units of Cardano to become members of the network instead of mining new coins, meaning it uses orders of magnitude less energy than something like Bitcoin. This structure also lets Cardano scale up to meet increased demand without a stratospheric increase in power consumption.Stellar is an energy-efficient blockchain network that uses its cryptocurrency lumen (XLM) to facilitate global payments. Its consensus mechanism operates faster than proof-of-work and even proof-of-stake, relying on a group of trusted nodes to authenticate transactions. People can trade fiat and cryptocurrencies through the Stellar network, and use it as a way to send things like remittance payments across borders without incurring steep fees or lengthy transaction times.Nano is another low-energy crypto that’s been around since 2015. It doesn’t rely on mining, instead using “blockchain lattice” technology that creates user blockchains for everyone on the Nano network. Transactions are confirmed by Open Representative Voting (ORV), where representatives voted in by members of the network act as validators. It lets users transact peer-to-peer on their own blockchains instead of having to use the main network blockchain, cutting down on time and energy.Hedera Hashgraph is a cryptocurrency that could rival major payment processors like Visa in terms of transactions per second while using much less energy than bitcoin. Transactions are processed in parallel instead of linearly, making Hedera faster than legacy cryptocurrencies like bitcoin with the company claiming up to 100,000 transactions per second can be processed through its network. The makers of Hedera are also using its network to build sustainability projects like their Power Transition energy tracking software.Gridcoin uses the power from idle computers connected to its network for scientific research through the Berkeley Open Infrastructure for Network Computing (BOINC). It uses proof-of- stake and users get rewarded with a proof-of-research algorithm. Gridcoin has been around since 2013, and some of the projects currently using power from its network include mapping the Milky Way galaxy via [email protected].
These are just a few of the new cryptocurrencies being developed with sustainability in mind.
Advancements in consensus mechanisms and a focus on utilizing renewable energy sources would lower the overall environmental cost of cryptocurrency and blockchain networks with wide adoption. There is still the problem of e-waste from legacy mining operations to deal with, but non-PoW cryptocurrencies would drive down the demand to build newer and larger mining rigs in the future, potentially reducing that waste.