Cryptocurrency and the environment

The facts, the fiction, and how to find sustainable cryptocurrency projects to invest in.

*If you believe that Bitcoin offers no utility beyond serving as a* *ponzi scheme* *or a device for* *money laundering, then it would only be logical to conclude that consuming any amount of energy is wasteful. If you are one of the* *tens of millions* *of individuals* *worldwide* *using it as a tool to escape* *monetary repression*, *inflation, or* *capital controls, you most likely think that the energy is extremely well spent. Whether you feel Bitcoin has a valid claim on society’s resources boils down to how much value you think Bitcoin creates for society.*
*- Nic Carter, Harvard Business review*
Artwork by Sara Shakeel

🌿 Today, we’re breaking down the good, the bad, and the general misconceptions about blockchain, cryptocurrency, and the environment. Here’s what you need to know — starting from the basics! Have a question? Want more? Drop in the comments and let’s chat! Follow us on Instagram and Twitter for more on Mother Earth and cryptocurrency. 🌿

UNDERSTANDING HOW CRYPTOCURRENCY USES ENERGY

Bitcoin + other proof-of-work cryptocurrencies require very large amounts of energy to perform the computations needed for mining (more on mining soon). Not all cryptocurrencies are mined, therefore not all have serious environmental impact. (Some are minted, which uses proof-of-stake, versus proof-of-work.)

Let’s dive in …

Proof-of-work (POW) was created as a way for transactions to be verified without a third-party system (such as a central bank). PoW is based on cryptography — a form of mathematics. (Hence, the name cryptocurrencies!) Cryptography uses mathematical equations that are complicated and require powerful computers to solve. Due to that, it can result in extremely high energy consumption. Bitcoin (BTC), Ethereum (ETH), Zcash (ZEC), and Litecoin (LTC) are all examples of PoW crypto coins, although ETH is switching to proof-of-stake — a transition that should occur in late 2022.
Proof-of-stake (POS) came after POW — as an alternative to high energy usage and (sometimes) slow transaction times. Using PoS, miners can validate block transactions based on how many coins they themselves hold. This diminishes the need for large amounts of energy required to complete a transaction — as no complicated mathematical work is required to execute. Cardano (ADA), Algorand (ALGO), Celo (CELO) and Tezos (XTZ) are all examples of PoS crypto coins.
There are also other protocols that use less energy aside from proof-of-stake — such as proof-of-authority.

It’s important to note — the high energy usage required to complete transactions for PoW cryptocurrencies does not apply to peer-to-peer transfers. It applies to when a new PoW coin is ‘mined’ (brought into circulation). Also important— for coins that are PoW (requiring higher energy consumption to mine) there is a limited number of coins that can be mined EVER. 83% of all the Bitcoin that can be obtained has already been mined through proof-of-work (PoW). That leaves about 2 million Bitcoin left that can be mined before 100% of Bitcoin is in circulation. Therefore, we will hit a point where the energy consumption for Bitcoin will drop significantly, (once all coins are mined).

Now that we know the difference between PoW and PoS, let’s look into the high energy usage of PoW. Because while proof-of-work cryptocurrencies utilize a great deal of energy, it pales in comparison to the traditional banking and / or gold industries …. And unlike other industries, it’s key to remember cryptocurrency has the potential to take advantage of green energy to increase sustainability (wind and solar power).

In fact, according to the Cambridge Bitcoin Electricity Consumption Index, over 70% of cryptocurrency miners use a mix of renewable energy to mine new coins. (Wow!)

HOW DOES CRYPTOCURRENCY ENERGY USAGE STACK AGAINST OTHER INDUSTRIES?

Most things require energy utilization. That includes transportation, banking, fashion, gold , and the agriculture industry — all which have much higher energy usage than proof-of-work cryptocurrencies like Bitcoin. Our acceptance for this energy utilization is due to the ‘value’ we place on each of these sectors. If you find no value in Bitcoin, you surely won’t think the energy utilization (that proof-of-work coins require for security and decentralization) necessary. If you do use proof-of-work cryptocurrencies, the perceived and real-life value is much higher.

So, for context, how do these industries that lead carbon emissions stack up against Bitcoin’s carbon footprint? The fashion industry is one of the leading causes of carbon emissions — responsible for 10% of annual global carbon emissions (worldbank.org). Based on data from the UN, the fashion industry’s carbon footprint (recorded in 2017) was 5.3 billions tons. That’s roughly 143x larger than Bitcoin’s carbon footprint (37 million tons)!

An analysis by Simone Brunozzi, Operating Partner at tech investment firm Cota Capital, suggests that gold mining is 50 times more expensive than mining Bitcoins and running the Bitcoin network. Producing gold for the wedding band on your finger alone generates 20 tons of waste. (via Forbes)

And what about travel?

A 2018 study estimated tourism to account for about 8% of the world’s carbon emissions. Using the above estimates, that would put it at 4.28 billion tonnes of CO2 per year — still more than 100x as much as Bitcoin.
— Andrew Munro

OK, I GET IT. SO, IS THERE ANY WAY TO MAKE CRYPTOCURRENCY MORE SUSTAINABLE? HOW CAN I DO MY PART IF I WANT TO INVEST?

Overall

Even Bitcoin mining CAN be made more sustainable … by utilizing ’wasted energy’ (acting as a point of energy recycling) OR by being mined through solar or wind power. If you’re interested in cryptocurrency but want to avoid proof-of-work coins, tokens, and NFTs due to their high energy usage to mine — look for alternatives such as proof-of-stake and proof-of-authority. These are projects that require much less energy usage and are ‘minted’ rather than ‘mined’. One carbon-negative coin we love? Alogrand (ALGO). Yep, cryptocurrency CAN be carbon negative!

Meet Algorand (ALGO)

Algorand is an open source, decentralized, scalable blockchain that prioritizes sustainability. Algorand’s blockchain protocol is fully carbon neutral and designed to create minimal environmental impact. (They have a partnership with Climatetrade — a blockchain-based applied service for companies to calculate and offset carbon emissions)
Algorand is currently developing a privacy layer on their blockchain — alongside regulators — to create a layer of privacy without allowing it to hide illegal activity. The creation of this permissioned layer (co-chain) means that independent blockchain ecosystems (tokens) can run independently on the Algorand blockchain

For all our web3 Witches — Look for NFTs (or mint your own) on the Polygon or Solana blockchains

Want to lower your environmental impact in the web3 world of NFTs? Look for projects or mint your own on blockchains like Polygon (MATIC) or Solana (SOL). Transactions on these networks are faster and much less expensive than Ethereum — which currently uses proof-of-work protocol but will soon be switching to proof-of-stake, which is more energy efficient.

This article is meant to provide insight and explanations to make it easy to:

Understand where the energy usage in cryptocurrency stems from
Learn the relation to cryptocurrencies energy usage compared to other industries
Discover alternative, sustainable solutions to proof-of-work cryptocurrencies

That being said, this is such an important topic and one we feel it’s key to truly DYOR (do your own research) and dig in for yourself. Here are some fantastic articles on cryptocurrency and the environment we love and suggest Crypto and web3 Witches read: