Cryptocurrency is slowly becoming a household name. Transactions via crypto are becoming common and preferred by businesses to settle payments for services or goods. With the current push to ensure that all activities protect the environment, how environmentally friendly are blockchain technology and cryptocurrency considering energy consumption and carbon footprint?
Let’s start with a definition of terms. Investopedia defines blockchain as a distributed database shared among the nodes of a computer network. Cryptocurrency, crypto-currency, or crypto, is a digital currency designed as a medium of exchange through a computer network not reliant on a central authority, like a government or bank.
While Cryptography is the study of secure communications techniques that allow only the sender and intended recipient of a message to view its contents, blockchain technology is a new and intimidating concept. Blockchain technology makes cryptocurrencies secure through cryptography. Blockchain stores information electronically in digital format. Blockchain guarantees the fidelity and security of a data record and generates trust without the need for a trusted third party. Blockchain doesn’t store its information in forms like databases. Instead, it keeps it in the shape of structures or data into chunks (blocks) that are strung together. This data structure inherently makes an irreversible timeline of data when implemented in a decentralized nature. This article will scrutinize how unsafe Blockchain technology and Cryptocurrencies are for the environment.
There are different blockchains: Public, Private, Hybrid / Consortium, and side chains.
Public blockchains are decentralized computer networks accessible to anyone wanting to request or validate a transaction (check for accuracy). When Miners validate a transaction, they receive rewards. Private blockchains are centralized and cannot be accessed unless you have special permission from the administrator. Consortiums or Hybrid blockchains combine public and private blockchains and contain centralized and decentralized features. Lastly, sidechains allow users to move digital assets between two blockchains and improve scalability. Blockchain technology requires electricity or power. Bitcoin is often labelled as a “dirty currency” as it leaves a reputably high carbon footprint. A carbon footprint can be defined as the total amount of greenhouse gases (Including carbon dioxide and methane) generated by our actions.
The Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin, the most widely-mined cryptocurrency network in the U.S., uses around 136.38 Terawatt-hours of electricity annually—more than the Netherlands, Argentina, or the United Arab Emirates. It computes 2,145 kilowatt-hours of electricity per transaction, the same amount of power consumed by the average American household over 73.52 days. Ethereum, on the other hand, the second-largest cryptocurrency network, is estimated to use 112.6 Terawatt-hours of electricity per year—more power than is required by the Philippines or Belgium. The average Ethereum transaction required 268.6 kilowatt-hours of electricity, the same amount of power that an average U.S. household consumes in 9.08 days. Cryptocurrency mining requires a considerable amount of energy, not to mention the Electronic waste generated when the hardware (especially for miners who have specialized rigs specifically designed for mining) becomes obsolete. Cryptocurrency uses so much energy because they use Proof of Work (PoW) to verify transactions on the network. Proof of work requires miners to use their hardware and electricity to help the network process and confirm a transaction by process and solving what is effectively a complex puzzle. Once they solve the problem, the miners receive crypto. So to get the highest returns, the miners have to invest in fast machines to solve the puzzles faster. Most countries with the highest transactions in cryptocurrency are currently using non-renewable energy, e.g. China uses coal.
Not to mention countries currently relying on Uranium, Natural gases, and oil. How do we ensure that cryptocurrency mining and blockchain technology are less environmentally harmful?
It’s important to mention that there is a Crypto Climate Accord, a privately led committee that seeks to make the crypto industry 100% renewable. The committee is governed by the Paris Agreement, the international climate change treaty adopted in 2015. Firstly, it’s possible to change the work model from Proof of Work (PoW) to a less energy-consuming model, which is Proof of stake (PoS). Unlike PoW, where the transactions need to be validated, PoS requires miners to put up their stakes or contribute their own Crypto for a chance to be selected to verify a new transaction and earn a reward. Rewards are based on the amount of crypto they have contributed and the length of time their stake has been. Secondly is using renewable energy sources. Instead of using non-renewable fossil energy, miners can invest and power their machines using solar or wind power. It might mean the manufacturers are changing the equipment to allow the use of these sources of energy. Thirdly, electronic waste can lessen once manufacturers have multipurpose machines. Then the span of the equipment can be increased by reducing the changes in physical models and introducing electronic patches and upgrades that users can easily download. Fourthly, investors can invest in an environmentally friendly cryptocurrency or use Cardano, Nano, BitGreen, Chia, and IOTA. The above crypto uses verification methods that leave less carbon footprint. Fifthly, there is a need for the Crypto industry to set up standards and goals and also come up with programs that will ensure the industry is regulated in terms of sustainability and goals. Examples of these programs include Crypto Climate Accord. Cryptocurrencies and their hardware must be 100% green by 2030 to follow the Crypto climate accord.