Some players in the cryptocurrency space are trying to regulate the digital currency’s carbon footprint. Is green Bitcoin finally happening?
In mid-May, Tesla CEO Elon Musk announced the company would no longer be accepting vehicle purchases using the cryptocurrency Bitcoin. The electric car manufacturer, which advertises itself as a clean energy alternative to fossil fuel-powered automobiles, cited concerns about “rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.”
But in less than a month, Musk compromised, saying that the company would resume Bitcoin transactions once 50% of Bitcoin mining is powered by clean energy, with evidence that the market will progress towards net-zero.
A report published in April, backed by the Tesla CEO, as well as numerous investment firms and digital payment companies such as Cathie Wood’s ARK and Jack Dorsey’s Square Inc., promotes Bitcoin mining as an “ideal” part of renewable energy projects. In February, the carmaker revealed it had bought US$1.5 billion in Bitcoin.
Whether Tesla’s move was meant to uphold corporate environmental responsibility, assuage investors’ concerns, or manipulate the cryptocurrency market, it cannot be denied that Bitcoin, and cryptocurrency in general, has a massive environmental impact that needs to be regulated.
How Would a Green Bitcoin Work?
Cryptocurrency’s massive carbon footprint is fundamentally owed to a process called Proof of Work (PoW). Since there are no governmental bodies or regulatory organisations that oversee cryptocurrency transactions, a mechanism must be integrated to ensure verification of transactions. In PoW systems, powerful high energy-consuming computers are used to solve complex cryptographic calculations that allow new verified transactions to be added to a digital ledger: the blockchain. By design, PoW requires exorbitant amounts of computing power so that ledger entries cannot be tampered with, but the downside is that Bitcoin alone rivals Hong Kong’s electricity use and has a carbon footprint comparable to that of New Zealand.
To make Bitcoin green without overhauling the cryptocurrency’s entire infrastructure, it would have to be powered by renewable energy. Argo Blockchain, a crypto firm which went public on the London Stock Exchange in 2018, was set up initially in Quebec with cheap hydropower as their clean energy source. Argo expanded into America in 2020, taking advantage of wind power from a 130 hectare piece of land in Texas. Gryphon, another Bitcoin mining firm, uses low-cost hydroelectric power from upstate New York. The crypto startup Power Ledger is driving the development of clean, affordable energy and sustainable development. Through POWR, Power Ledger’s utility token currency, the Australian sustainability firm has developed an energy trading platform that tracks and validates solar energy transaction in real time.
The Crypto Climate Accord
In April earlier this year, numerous cryptocurrency firms, digital wallet platforms, and clean energy nonprofits formed the Crypto Climate Accord (CCA). Signatories pledged to switch to renewable energy sources to fuel their operations by 2025, and go completely carbon net-zero by 2040. They are also working on an open-source accountability standard for monitoring emissions produced by blockchain as well as the amount of renewables used, which would ensure the legitimacy of claims regarding sustainable practices in the crypto space. This will be a challenging feat for a decentralised industry shrouded in anonymity.
One should note, however, that the Rocky Mountain Institute, the Alliance for Innovative Regulation, and Energy Web Foundation, along with all of the CCA’s signatories, are organisations in the private sector. Critics have raised concerns that the Accord, being largely self-regulated, could hamper government policies for carbon regulation, and perform illegitimate recordkeeping,
The Future of Bitcoin
Argo Blockchain became a signatory of the Crypto Climate Accord in May this year, pledging to clean up their Bitcoin mining efforts. As of late April, approximately 90% of Argo’s revenue is owed to Bitcoin, which means, in other words, that the mining firm is heavily reliant on the dirtiest cryptocurrency in the world. And Argo is not the only CCA signatory that heavily depends on Bitcoin. A vast majority of companies that are part of the Accord, including Gryphon, are also mining companies that have a vested interest in proof of work cryptocurrencies.
In theory, making Bitcoin run on clean energy will significantly lessen the impact of PoW mining on the environment, but some argue that it could have potentially punitive consequences. Assuming that the CCA does succeed in making Bitcoin carbon neutral, Bitcoin mining would still eat up massive amounts of energy. If Bitcoin and other PoW currencies continue to grow, miners will compete for renewable energy resources with more essential allocations such as powering homes and public transportation. This is already happening now in Texas, where crypto miners are taking advantage of the lack of regulation and access to clean energy, all while the Electric Reliability Council of Texas urges citizens to conserve energy to prevent further stress on the already unstable power grid.
As much as the Accord is made up of Bitcoin-reliant companies, it does have support from crypto and currency exchange firms that do not use the proof of work model. As opposed to Bitcoin, the cryptocurrency XRP, also known as Ripple, does not use a consensus algorithm that eats up massive amounts of energy, which makes their goals to go carbon neutral by 2030 all the more attainable.
Proof of Stake
Bitcoin is not the only proof of work cryptocurrency on the market. The Ethereum blockchain does currently run on PoW, but is planning to move to a more energy-efficient mechanism called proof of stake, which will reduce energy consumption by more than 99.95%. Under their new initiative, ETH 2.0, currencies will no longer be mined with computers that burn massive amounts of fossil-fuel- instead, the amount of Ethereum you can acquire is dependent on how much of the cryptocurrency you already have. In a proof-of-stake transaction, potential transaction validators “stake” a deposit into the network, and depending on the size of the stake, are chosen to validate the transaction. Upon completion, validators are rewarded with a sum of Ethereum.
The Crypto Climate Accord’s vision of a green future for cryptocurrency is commendable, but it will take them monumental amounts of effort for them to accomplish their goals. Bitcoin is here to stay, but making Bitcoin green must mean a more sustainable future for the world, not just the crypto space.