As the corporate decarbonization commitments increase, so does the confusion about what these claims represent. […]
Sustainable cryptocurrency is everywhere in the news, with stakeholders both lauding its merits, and raising concerns about its negative footprint. Yet computers are crunching away, especially as green cryptos are popping as an alternative to traditional ones. The Recursive looked into the trend of sustainable cryptocurrency. Here are 5 things you need to know about it.
1. Why are we talking about sustainable cryptocurrency?
To put it shortly: insane energy use. In case you have missed it, there is an ongoing, intense debate, concerning the increasing impact of mining cryptocurrency on the environment.
Cryptocurrency mining translates to verifying hundreds of thousands of daily transactions, which involves extensive use of heavy computing power and, thus, of electric power. Inthe beginning of 2017, The University of Cambridge reported that Bitcoin mining consumes more energy than The Netherlands. Currently, miners of Bitcoin alone are generating 0.6% of global electricity consumption (with 130 Terawatt-hours of energy). By other records, the electricity used in a single transaction is comparable to over 1.6 million Visa transactions, or the power consumption of an average U.S. household for 53 days. And the majority of energy is sourced from burning fossil fuels, which takes its toll on the planet through greenhouse gas emissions.
Most recently, Bitcoin has fallen from grace after Elon Musk announced that Tesla would stop supporting the cryptocurrency. The CEO explained over Twitter: “Tesla will not be selling any bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy. We are also looking at other cryptocurrencies that use <1% of Bitcoin’s energy/transaction”.
2. How can cryptocurrencies be made more sustainable?
There are various factors at play. As an example, when calculating the individual impact, scale matters: smaller companies have fewer transactions and thus using less energy. But to scale sustainably, other building elements will make all the difference.
One factor is the system of blockchain verification, used to ensure security. Bitcoin uses the energy-intensive proof of work, whereby miners around the world use powerful computers to verify records and transactions. Other cryptos use alternative systems that require less computational complexity and energy use, such as proof of stake and proof of storage.
Another way to reduce the negative impact of mining is using clean energy alternatives. 65% of the mining currently takes place in China, which is still heavily dependent on fossil fuels such as coal. But as the costs of renewable energy installations decrease and the world becomes less reliant on carbon, the energy mix for Bitcoin and other cryptos will also become less dependent on carbon. Viceversa, green crypto miners and organisations such as the Crypto Climate Accord could end up contributing to expanding the renewable energy infrastructure around the world.
3. What are some key sustainable crypto coins and tokens?
One of the most popular green crypto coins out there is Cardano’s Ada. It also has the fourth-biggest market capitalization among cryptocurrencies – $50 billion.
Cardano uses the proof of stake blockchain verification system, which reduces computer usage and thus energy use. Instead of requiring heavy mining, the system chooses users with larger stakes (i.e. who have more crypto coins, locked as security) to verify transactions and add blocks to the chain. Based on the quality of the blocks, the system rewards or punishes the users. Testimony to its potential as a blockchain verification system, Ethereum envisions a transition to proof of stake by 2021, with an energy drop of 99,99%.
SolarCoin has another approach to improving environmental impact. It rewards solar power installations through 1 solar coin for every megawatt-hour produced through solar energy.
A pre-mined token, Ripple’s XRP is used to bridge asset transfers. Its security algorithm, requiring 80% of the network’s validators to approve transactions, uses 120,000 times less energy than the traditional proof of work system.
Cryptocurrency and blockchain companies have also started opting for carbon offsetting through partnerships with organisations such as the Renewable Energy Business Alliance and the Energy Web Foundation.
4. How are users reacting?
There are currently over 4,500 mineable cryptocurrencies, giving traders plenty of options to choose from, based on their preferences. And crypto sustainability concerns are far from limited to Tesla and Elon Musk. Investors are already jumping on the green crypto bandwagon.
Chia’s effect on the hard-disk drives market is one testimony to the increased enthusiasm around green cryptocurrencies. Demand for hard-disk drives has surged since the launch of “eco-friendly” cryptocurrency chia. The crypto uses a less energy-intensive proof of storage verification model, whereby empty storage on hard drives is “seeded” by the software, creating “plots”, or sequences of cryptographic numbers. These plots can later serve users in winning a block in the chain.
Some stakeholders, however, see crypto’s high energy use as an acceptable, if temporary externality to creating larger societal benefits. One of these is the creation of a decentralised financial system, outside of government interference, with full transparency of transactions. The proof of work system is, in that sense, a great example of tech innovation, serving a social cause.
5. Could crypto and blockchain become a sustainable alternative to traditional currencies?
With green digital coins on the rise, the market seems optimistic about the potential of using crypto for long-term investments and digital transactions.
It is particularly interesting to see how cryptocurrencies are making life easier for vulnerable communities. In Nigeria, crypto was a useful alternative investment during a period of devaluation of the local currency. As a result, Nigeria ranked third last year for crypto trade volumes. Moreover, cryptocurrencies are increasingly favoured over fiat currencies for remittance – diaspora communities sending money to family members. Crypto transfers have lower fees and faster confirmation time.
If in a not-so-hard-to-imagine future, cryptocurrencies and blockchain ended up replacing other currencies, such as gold, they would free up certain resources and costs. Bitcoin currently consumes less than 10% of the energy, required by the traditional banking system. And crypto is already the sixth-largest base money in the world, behind only the Eurozone, US, China, the UK, and Japan. Its GDP value far exceeds that of many countries. Should scaling crypto as a relevant option for more financial needs be achieved in a more eco-effective way, this would quickly turn into a competitive advantage.