Surging demand for crypto and accelerating adoption of blockchain-based solutions among businesses and individuals have highlighted a critical issue: the impact of the technology’s growing energy consumption on our climate. - guest blog by Diana Diaz Castro
According to the Cambridge Bitcoin Electricity Consumption Index, bitcoin-mining operations worldwide now use energy at the rate of nearly a hundred and twenty terawatt-hours per year. To put this into perspective, it is estimated that one Bitcoin transaction is the “equivalent to the carbon footprint of 735,121 Visa transactions or 55,280 hours of watching YouTube,” according to Digiconomist, which created what it calls a Bitcoin Energy Consumption Index. That’s a lot of carbon pollution for a service that benefits a relatively tiny number of miners, traders, and cryptocurrency investors.
It’s important to mention that the measurement of energy consumption by bitcoin-mining is not an exact science. in fact, depending on which study you read, the annual carbon emissions from the electricity required to mine Bitcoin and process its transactions are equal to the amount emitted by all of Sweden or New Zealand, or Argentina, or Portugal (all of them very different!). Nevertheless, whatever country of comparison you use, one thing is clear: Bitcoin uses more electricity per transaction than any other method known to mankind, and so it’s not a great climate thing.
When it comes to sustainability, however, digital assets aren’t all made equally. Bitcoin is arguably the most widely known cryptocurrency, but by no means, is it the most sustainable. Other cryptocurrencies such as XRP are a staggering 61,000x more energy-efficient than Bitcoin. Nevertheless, even the most efficient cryptocurrencies reward energy waste, and it’s not clear that even a good-faith effort to use more energy-efficient currencies could justify the market’s insatiable appetite for power.
To avert the worst-case climate scenarios, countries around the world have committed to reaching net-zero by 2050. Addressing sustainability across all industries is a worldwide priority and the blockchain and digital asset industry will play a critical role in building a sustainable future for global finance.
So a small but growing number of initiatives are looking at ways to clean up the crypto market. This trend has been sparked up by the potential liability that crypto could represent for companies like Square, or Elon Musk’s Tesla, which purport to be climate-friendly but own a significant volume of Bitcoin. Meanwhile, the digital payment platforms that accept cryptocurrency are just beginning to look into their climate footprint.
A spokesperson for PayPal said the company is studying the problem and “looks forward to the much-needed emergence of related best practices and standards to help thoughtfully measure and address these emissions.” Its competitor Square announced in December a $10 million “Bitcoin Clean Energy Investment Initiative” to support green-minded Bitcoin companies, but hasn’t named any yet.
As initiatives to make crypto more sustainable are emerging everywhere, I decided to introduce you to 5 of these initiatives and their pros and cons.
1. The Crypto Climate Accord
The Crypto Climate Accord is a private sector-led initiative committed to making the cryptocurrency industry 100% renewable. Inspired by the Paris Climate Agreement, the Accord brings together the crypto and financial technology (fintech) industry to build a sustainable future for global finance with support from the United Nations Framework Convention on Climate Change (UNFCCC) Climate Champions.
The Accord will employ a “big tent” approach and act as a coordinating framework to decarbonize all aspects of the industry. Energy Web, AIR, and RMI have developed three high-level objectives for the Accord, to be finalized with supporters in advance of the United Nations’ COP 26 Climate Conference later this year:
- Enable all of the world’s blockchains to be powered by 100% renewables by the 2025 UNFCCC COP Conference
- Develop an open-source accounting standard for measuring emissions from the cryptocurrency industry
- Achieve net-zero emissions for the entire crypto industry, including all business operations beyond blockchains and elimination of historical emissions, by 2040
“In addition to urgently eliminating future emissions, this industry is uniquely placed to address its historical emissions debt. The very nature of blockchains enables historical system-wide transparency, making crypto’s emissions debt a ripe target for carbon dioxide removal solutions. This is a unique chance to publicly clean up the past, reject future emissions, and push the boundaries of climate leadership,” said Nigel Topping, High-Level Champion for Climate Action at the United Nations’ COP26.
The pros: If successful, the Crypto Climate Accord will create wins for both the planet and the global economy. For climate advocates, it can eliminate emissions from a fast-growing source of electric load. For the cleantech industry, it can onboard an entirely new class of customers with significant demand for energy. For the crypto industry, it can help support the widespread adoption of crypto by making a more sustainable and scalable industry.
The cons: Accords, alliances and net-zero targets have been highly criticised for being the perfect mechanisms to delay action. How effective this accord will depend on the willingness and engagement of all the participants rather than the words in a commitment.
2. Increasing reliance on renewable energies
Many people suggest that the problem is not the high energy consumption itself, but the type of energy being used. Our electricity systems heavily rely on fossil fuel and that’s why high energy-demanding activities, such as crypto mining, end up creating more emissions.
For many, renewable energies would -in theory- solve the whole problem.
In a 2019 Cambridge survey of 280 Bitcoin companies, 39% reported that their mining activity was already powered by renewable energy and this number is expected to increase as the provision of renewable energy also increases.
The pros: In some cases, especially with large hydropower dams in China, Bitcoin mines may well use energy that would otherwise go to waste. Gazprom, the Russian state-owned natural gas company, also has a division that sells Bitcoin miners power generated from flare gas, a waste byproduct of oil and gas drilling and processing that would otherwise be emitted (although to use it for Bitcoin creates a profit incentive to drill more). Bitcoin miners also chase cheap hydro in Canada and the US Pacific Northwest.
The cons: Whilst renewable energy consumption seems to be the way forward, as mining activity greatly outpaces the availability of “leftover” energy, even the best-intentioned, most credible efforts to use green energy ultimately run into the ethical conundrum: Is cryptocurrency really the best use of capital and natural resources when the whole world is racing to decarbonize?
3. Managing energy demand
Norwegian oilfield services billionaire Kjell Inge Røkke, launched a new venture called Seetee. In a letter to shareholders, Røkke said the company’s goal is to “establish mining operations that transfer stranded or intermittent electricity without stable demand locally — wind, solar, hydropower — to economic assets that can be used anywhere.” Bitcoin, he writes, is “a load-balancing economic battery, and batteries are essential to the energy transition required to reach the targets of the Paris Agreement.”
The pros: The plan, in other words, is to situate Bitcoin mining centers in places where renewable energy farms overproduce electricity during times of low demand, and soak up that excess power for mining. The mine gets low-cost, zero-carbon power; the wind or solar farm gets a reliable big customer.
The cons: This approach has a fatal flaw, said Alex de Vries, a digital currency economist who authored the Joule article. It assumes that the mining operation can pause when that electricity is needed for other, more socially beneficial purposes. But mining only works when it runs 24/7. Each time miners unlock coins by successfully verifying transactions on the blockchain, the next set of calculations automatically becomes a little bit harder to crack. It’s a race against time: The only way to get an edge over competitors is to run more machines more frequently, with the cheapest source of power.
4. More energy efficient digital transactions
There are also new ways to conduct greener Bitcoin transactions. For example, users could batch transactions on something called a Lightning Network, essentially a payment channel between two users that would use less power to process transactions.
Energy-efficient digital transaction methods, may be achievable within the code itself, said Roberto Rigobon, a professor of applied economics at the MIT Sloan School of Management. Bitcoin’s approach to mining “is a very bad system where competition to overuse energy determines the winner,” he said. But, “this is purely a Bitcoin issue, not a cryptocurrency issue.”
The pros: Companies like PayPal argue that those new protocols may change Bitcoin’s carbon footprint: “Not only are we assessing the climate impact of cryptocurrency, which is concentrated on Bitcoin, but also the entire industry is evolving in the assessment and measurement standards of the potential environmental impacts and more energy-efficient protocols are emerging.”
The cons: Still, the fundamental changes that would make guilt-free digital currency widely available — for example, scrapping the mining process altogether for a less computationally demanding blockchain approach — would require consensus within the mining community, and risk triggering a collapse in the currency’s value. Bitcoin’s main rival, Ethereum, is planning to make such a technology shift at an undetermined date.
5. Using crypto to support sustainable initiatives
Once energy consumption has been accounted for, one question remains: what is crypto being used for?
Most currencies today aren’t environmentally friendly, with the production and movement of money contributing to pollution, deforestation and a large carbon footprint. By offering an alternative to cash that is more efficient, accessible and sustainable, blockchain and digital assets could help drive sustainable transitions in the financial sector.
An example of this is Efforce, Steve Wozniak’s new startup in the green tech and blockchain space. Efforce, which has been in stealth mode for almost a year, is a marketplace for corporate or industrial building owners to have “green” projects funded.
Wozniak created Efforce “to be the first decentralized platform that allows everyone to participate and benefit financially from worldwide energy efficiency projects, and create meaningful environmental change,” he said.
The pros: According to Efforce, “investors can participate in energy efficiency projects buy acquiring tokenized future savings,” while companies benefit from such improvements “at no cost.” Using blockchain, “a smart contract redistributes the resulting savings to token holders and the companies without intermediaries based on exact consumption/savings data.” This would enable a flow of capital towards sustainable practices which is so needed to close the climate finance gap.
The cons: Using blockchain to fund sustainable initiatives is very positive, but it has two main flaws: first, it assumes that financing certain technologies is enough to achieve sustainability targets and that no change in behaviour will be necessary to decarbonise the economy and second, as long as the energy problem is not solved, the intentions of these initiatives will be overshadowed by the effects of using the technology.
Which initiative do you think is the most promising? Do you know any others?
Guest blog contributor Diana Diaz Castro is an Entrepreneur First incoming cohort member, a programme to develop and lead a globally important tech-based company. She is also working with the UN Environment Programme Finance Initiative in Geneva, Switzerland.
Additionally, Diana has 5 years of experience working as a management
consultant, transport and city planner, researcher, and project engineer. she has worked across various geographies including the USA, the UK, Europe and Latin America with the public, private and financial sectors.
Diana holds a BS Hons in Civil Engineering and an MSc in Transport and City Planning from UCL.
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