Crypto goes green and decreases its carbon footprint: an analysis

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@techlooterAndrej Kovacevic

A dedicated writer and digital evangelist.

Since Bitcoin entered the scene in 2009, there has been a heated debate about the impact it and indeed all cryptocurrencies have on the environment. This is because cryptocurrency mining requires immense computing power, which consumes huge amounts of electricity.

At the time of this writing, a single Bitcoin transaction required over 1,400 kWh of electricity, which is enough to power an average American household for almost 50 days. And when you consider that around 70% of the world’s energy production comes from non-renewable sources, the implication is clear. Cryptocurrencies are an environmental disaster.

But it’s also clear that cryptocurrencies are not going to go away. And that means something is going to have to change for cryptocurrency mining to be sustainable. And the answer lies in a combination of carbon offsets, renewable energy mining and a shift away from proof of work. Here’s a look at some of the efforts to achieve these goals and how they will need to fit together to build a greener future for cryptocurrencies.

The carbon offset approach

One of the ways that some companies in the crypto ecosystem are trying to minimize the environmental impact of mining crypto is through carbon offsets. This is considered to be the easiest way to fix the problem, mainly because it doesn’t require any change in how crypto miners work. In short, it is the practice of paying someone else to reduce their carbon emissions to offset yours.

Companies like Cudo Ventures are building distributed IT infrastructures that use carbon offsets to stay carbon neutral in crypto. Their approach aims to harness unused compute cycles on users’ existing hardware to create a massively distributed computer network. And they are not alone. Individual mining operators like Greenidge Generation are also becoming carbon neutral by purchasing offset credits elsewhere.

The switch to renewable energies

Others in the crypto space are going even further, looking for ways to power their mining operations with renewable energy. This approach can have a direct impact on the crypto industry’s CO2 emissions, as it will eliminate them rather than simply preventing a net increase in global emissions. But using renewable energy on a scale sufficient to support primary mining operations is no easy task.

Some mining operators, such as Atlas Power, are promoting their renewable energy initiatives. They are offering a 300 MW solar farm in Montana that would power their entire operation (as well as the surrounding community). And others, like PEGA Mining, have chosen to base their mining operations in Iceland to take advantage of the abundant geothermal energy and naturally cold environment. But locations that have space for massive solar farms or have geothermal energy resources are limited, making it difficult for renewables to be a suitable short-term solution for greener crypto mining.

Move away from proof of work

Last but not least the elephant in the room regarding the environmental impact of crypto: proof of work, or PoW. The dependence of Bitcoin and Ethereum on PoW is the underlying problem that makes crypto mining a resource-intensive process. It’s slow, it’s heavy, and it’s expensive. And while it exists, there’s probably no easy way for the crypto world to go carbon neutral.

Ethereum, to its credit, is moving away from PoW in favor of proof of stake, or PoS, with the release of Ethereum 2.0. This move is expected to reduce Ethereum’s power consumption by at least 99.95% once it’s all said and done. But the truth is, Ethereum’s power consumption is already less than a third of Bitcoin’s, making their change little more than a drop in the bucket.

Bitcoin, on the other hand, has no intention of deviating from the PoW consensus model. And that means it will remain dependent on things like renewables and carbon credits to limit its environmental impacts. But most experts believe that Bitcoin might be forced to migrate to PoS in the long term for a few critical reasons.

The first is that it may be the only way to solve Bitcoin’s inherent scalability issues. That’s what prompted the switch to Ethereum, and once they’re done, Bitcoin may need to follow suit just to stay competitive. But the second reason has to do with the economics of mining. As halving continues to make Bitcoin mining less profitable every four years, it will ultimately make no sense for miners to continue to run their operations. And in the end, only a more efficient system could keep the network viable.

The bottom line

It is more than likely that we will see more members of the cryptocurrency mining community adopt one of the first two approaches in the near term. They will do it because there is enormous social pressure on them to stop contributing to climate change. But they also have a significant financial incentive.

That’s because carbon caps are coming into effect around the world, meaning miners have no choice but to turn to renewables or buy offsets. And while some may try to relocate as a temporary way to escape traffic jams, they are going to run out of places to hide at some point. Their only alternative would be to go out of business altogether, which seems unlikely given how lucrative (large-scale) cryptocurrency mining is.

But until Bitcoin does remove PoW, the crypto industry is unlikely to ever be carbon neutral. There is simply too much inefficiency and not enough solutions to overcome it. So when it comes to a green future for crypto, the ball is in Bitcoin’s court. And the question for his mining community is simple: does it make more sense to wait for costs to skyrocket as carbon caps become the norm or start fussing about moving to PoS now?

For the sake of the environment, let’s hope they choose the latter.

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