Is cryptocurrency green?
Currently, many don't consider cryptocurrency as a "green" industry due to Bitcoin's energy consumption. Bitcoin remains the largest crypto by market cap and accounts for most of the crypto industry's power usage.
Unlike many recent crypto projects, Bitcoin relies on the PoW consensus mechanism, which involves computers to solve algorithmic problems every 10 minutes to validate transactions. Whoever solves this problem first gets to claim crypto rewards and transaction fees.
While the PoW mechanism has proven successful on the Bitcoin blockchain, it consumes a lot of energy. The more hash power BTC miners use, the greater the odds they'll receive BTC block rewards, encouraging miners to constantly increase their energy output.
Current estimates suggest Bitcoin consumes roughly 150 Terawatt hours (TWh) of electricity annually, which is equal to the energy consumption of many countries without a large industrial sector. An estimated 62.4% of greenhouse gasses from the Bitcoin blockchain come from non-renewable resources like fossil fuels. However, some people argue this is necessary to maintain economic freedom and comparing energy usage to countries with outsourced industrial sectors is misleading.
What makes a cryptocurrency environmentally friendly?
If a digital currency doesn't need excessive hash power or non-renewable resources to run its network, many view it as an eco-friendly project. Typically, any crypto that doesn't use proof-of-work (PoW) in its design will have a carbon-neutral or carbon-negative status.
Currently, PoS is the most widely used alternative to PoW. Cryptocurrencies that use PoS don't force large computers to solve algorithms to validate transactions. Instead, these cryptos require validators to "lock" a set amount of the native digital coin on the blockchain. Anyone "staking" their coins has the chance to validate transactions and earn crypto rewards.
Besides using a PoS consensus mechanism, crypto projects could invest part of their treasuries into carbon credits or donations to environmental causes. For example, the Polygon Network announced it bought $400,000 in BCT and MCO2 carbon credits in 2022. Other crypto projects like Stepn are building eco-conscious incentives into their white papers. Built on Solana, Stepn encourages people to walk and jog for crypto rewards.
Examples of low-energy cryptocurrencies
All major cryptocurrencies which leverage the PoS algorithm could be considered more friendly for the environment. This includes cryptocurrencies which power blockchain platforms Ethereum, Solana, Avalanche as well as tokens which are built ontop of the platform.
How to make cryptocurrency more sustainable
The blockchain community is working on some of the following ways to address environmental concerns without sacrificing security. Even older PoW projects like Bitcoin are developing new strategies to reduce their carbon footprint.
- Changing consensus mechanisms: Cryptocurrencies that use the PoW algorithm produce the most pollution and consume the most energy. For this reason, eco-conscious developers are more interested in consensus mechanisms like PoS or proof-of-authority (PoA). The more blockchains favor non-PoW options, the less of a burden the crypto industry will be on the environment.
- Increasing eco-awareness in crypto communities: A few nonprofit organizations now advocate green alternatives in the blockchain industry. For instance, the Crypto Carbon Ratings Institute and the Bitcoin Mining Council work to spread information and encourage blockchain developers, miners, and other industry players to implement eco-friendly crypto solutions.
- Promoting transparency in energy reporting: Another way organizations like the CCRI can improve crypto sustainability is by publishing high-quality research and transparent energy reports. Many blockchains and publicly traded crypto mining companies already release information on their energy consumption and average pollution rates. This data can help environmentalists and developers pinpoint issues and create actionable solutions.
- Incentivizing renewable energy: Bitcoin advocates argue that miners will naturally migrate to more renewable energy sources as they learn the benefits of reducing their energy costs. Incentive-based programs to use energy sources like wind or solar may also decrease the use of fossil fuels.
- Upgrading mining equipment: Companies like Intel, Block, and Shell Global announced they’re investing in state-of-the-art equipment for Bitcoin miners. Hi-tech computer chips, mining rigs, and cooling units may help miners increase efficiency without producing as much e-waste.
Wrapping up
Nobody knows if and how Bitcoin will become a more sustainable cryptocurrency. Some developers want Bitcoin to transition to PoS as Ethereum did, but others suggest investing in eco-conscious hardware improvements. Although it's unknown what path PoW cryptos will take, many new projects are adopting eco-friendly practices. Hopefully, as more developers and researchers enter the crypto space, there will be more green alternatives for the Web3 industry.
At Worldcoin, we support the eco-conscious movement in the cryptocurrency sector. We also believe that more people will understand the value of crypto if they have the opportunity to use digital coins. Subscribe to our YouTube channel to learn more.