As cryptocurrencies continue to experience a sharp rise in adoption and investment, with Bitcoin reaching unprecedented peaks, the industry faces an increasingly prominent issue: Carbon emissions. The energy consumption of these digital currencies, particularly Bitcoin, has caused alarm across the globe as countries wrestle with the challenge of mitigating climate change. The carbon footprint of Bitcoin mining, indeed, has been likened to that of entire countries, fueling robust conversations about the need for Sustainable Solutions in Blockchain.
Bitcoin, as the largest and most prominent cryptocurrency, is at the center of this conversation. Its production, also known as mining, relies on a Proof of Work (PoW) mechanism that requires a significant amount of computational power. According to data from the Cambridge Centre for Alternative Finance, the Bitcoin network consumes around 121 terawatt-hours per year (TWh/year), which would make it the 6th highest energy consumer if it were a nation, above countries like Argentina and the Netherlands.
Genesis Mining, one of the industry’s leading Bitcoin mining companies, issued a report titled “#BitcoinImpact: A case for Bitcoin and its impact on Energy Consumption.” The report highlights Bitcoin’s energy usage trends, current emissions levels, and the strides being made towards sustainable mining practices. The report states that Bitcoin miners generally seek out locations where electricity is cheap, abundant, and often renewable. However, the study also notes that significant work is still needed to ensure a majority percentage of Bitcoin mining is powered by green energy.
Litecoin, Ethereum, and other digital currencies also add to this energy demand. As these blockchain networks seek to become more mainstream and widely used, finding green solutions becomes an imperative, especially as countries strive for greener policies and emissions reduction targets.
Recognizing this carbon dilemma, industry leaders and pioneers have begun seeking and implementing eco-friendly alternatives.
As an example, Ripple, a digital payment protocol, utilizes a different consensus algorithm, the Proof of Stake (PoS), which is much less energy-intensive. The PoS mechanism removes the competitive nature of mining that exists in the PoW framework. Instead of competing to solve equations, participants are selected to validate blocks based on the amount of the currency they hold and are willing to “stake” or lock up as collateral.
Ethereum, one of the largest cryptocurrencies by market capitalization, currently operates on a PoW mechanism but is undergoing a transition to PoS in its upcoming Ethereum 2.0 upgrade, expected to cut its energy consumption by 99%. It’s a move seen as a concrete step towards sustainability in the blockchain industry.
An innovative avenue is the use of renewable energy for mining operations. Hydropower, solar, and wind energy have been exploited across the globe to power mining operations. BitRiver, the largest data center in Russia, offers services for Bitcoin miners. It is powered predominantly using hydropower, thereby reducing the carbon footprint significantly.
Similarly, electricity produced from renewable sources is often used in Sichuan, China, to fuel cryptocurrency mining during the wet season. According to a study published in “Nature Communications,” it’s estimated that 40% of China’s Bitcoin mines are powered with hydroelectricity.
In recent developments, more companies are exploring carbon offset credits to neutralize their emissions. Offsetting involves companies investing in environmental projects to balance out their own carbon footprints. For example, Hive Blockchain Technologies, which operates cryptocurrency mining facilities, announced plans to purchase Carbon Offsets with the goal of making its Ethereum operations carbon-neutral by the end of 2021.
As we delve deeper into the age of digital currencies, it’s clear that the industry must make concerted and combined efforts to mitigate its environmental impact. Blockchain has revolutionized many facets of global economies in the past decade, now it’s time to revolutionize how it operates with the earth’s resources. Whether in the form of a shift to more energy-efficient consensus algorithms like PoS, increased use of renewable energy sources for mining operations, or investment in carbon offset programs, the race is on to make blockchain sustainable.
SOURCES:
1. “Bitcoin Electricity Consumption: An Economic Approach,” Genesis Mining. https://www.genesis-mining.com/bitcoin-impact
2. “3rd Global Cryptoasset Benchmarking Study,” Cambridge Centre for Alternative Finance. https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/3rd-global-cryptoasset-benchmarking/
3. “Policy assessments for the carbon emission flows and sustainability of Bitcoin blockchain operation in China,” Nature Communications. https://www.nature.com/articles/s41467-021-22256-3
4. “Hive Blockchain Technologies Moves Towards 100% Carbon Neutrality,” Newsfile. https://www.newsfilecorp.com/release/83342
