Blockchains draw a lot of energy, but most miners are already clean energy savants
Environmentalists across the world are concerned cryptocurrencies are contributing to the rise in carbon emissions and leading to climate change. However, these blockchain-based assets could bolster investments in renewable or clean energy. Several global tech companies, including Square and Tesla, are also stressing the fact that the world needs more energy-efficient or green cryptos.
Recently, Tesla CEO Elon Musk validated the point in a tweet, saying green cryptos have a promising future. Tesla is also looking at cryptocurrencies that use less energy than Bitcoin and have currently halted Bitcoin transactions, owing to high energy concerns.
However, while there are apprehensions about cryptos consuming more fossil energy, only 18-20 per cent of the world’s total energy consumption is clean. In this context, the crypto industry’s share is over 40 per cent. According to Environmental Protection Agency (EPA), the transportation sector, followed by heavy industries and building construction, are the major contributors to greenhouse gases at 65 per cent. Since there is no obligation for the crypto industry to use clean energy, it reflects the forward-looking vision with which it operates.
At present, the total market cap of Bitcoin is $1 trillion, and its annual energy usage is apparently around $2 billion, which is a mere 2 per cent of the total net worth of the network. According to Anthony Pompliano, a well-known global investor and firm believer in blockchain assets, over 75 per cent of crypto miners are already using renewable energy. So, clearly, the rest of the industries are way behind cryptos in terms of renewable energy usage. One can be optimistic cryptos will be 100 per cent renewable sooner than expected, as industry stakeholders always strive to do better.
While the above data points are sufficient to debunk theories that crypto mining is leading to climate change, we also need to understand the correlation of crypto mining with the environment. What are global players doing to make energy-efficient solutions and how can they push to make green cryptos a veritable reality that could also be used in other sectors.
First, we need to understand whether cryptos are created or mined. In this case, mining is an analogy to gold mining because of the temporary mechanism used to issue new coins. Crypto is mined using high-tech computers that do complex mathematical calculations. The process requires a lot of electricity, which usually comes from fossil fuels, as is the case for any other industry.
Many critics, including Dutch economist Alex de Vries, have observed that Bitcoins alone leave behind an annual carbon footprint of 38.10 MT, which is equal to that of the total carbon footprint of Norway or Mumbai. But is the energy used so high that it should concern environmentalists? The accepted answer is a resounding ‘no’. But this inference could actually be wrong.
The overall market cap of all cryptocurrencies is over $2 trillion, with Bitcoin alone at $1 trillion. Bitcoin is a first generation cryptocurrency and works on a ‘proof of work’ model, wherein multiple systems compete to solve a problem. While the fastest system to do so gets the reward, the energy consumed by all other systems goes in vain. It is not the case for other cryptos. For instance, Ethereum, the second-largest crypto with a market cap of over $400 billion, operates on a ‘proof of stake’ model that consumes considerably lower energy. Still, crypto innovators are working towards bringing their energy requirements down to a bare minimum.
Stakeholders are also backing their servers with clean energy. Earlier this year, several organisations such as Energy Web, RMI and Alliance for Innovative Regulation (AIR) came together to form an initiative called Crypto Climate Accord that aims at making the crypto industry 100 per cent renewable by 2030. The accord has support from various global financial leaders and the United Nations Framework Convention on Climate Change (UNFCCC) Climate Champions. Accord supporters currently include over 20 organisations, including Consensys, Ripple, EDF and XRP Ledger. It is possible that cryptos might become the first trillion-dollar industry, other than the renewables sector itself, to become completely eco-friendly.
Blockchain platform Ripple has designed a payment solution called EW Zero to help the firm achieve zero carbon emissions by 2030. The solution is expected to be deployed across the Ripplenet network to attract more members to commit to a carbon-free ecosystem.
Overall, in the coming years, cryptocurrency and energy markets would converge. Sustainable infrastructure funds and grid-scale storage developers will get significant investments and take a proactive role in expediting the process of mining green cryptocurrencies in the future.
The writer is Founder and CEO at WazirX
DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.