Can Crypto help reduce emissions?
Cryptocurrency networks like Bitcoin have significant carbon emissions, comparable to that of countries like Thailand or Argentina.
However, crypto is becoming increasingly green, and its potential for disruption to virtually all industries may become vital in the fight against climate change.
In this article, we introduce you to cryptocurrencies, their energy consumption and carbon emissions, as well as their potential to bring your heating and energy bills down.
What is crypto?
In a nutshell, cryptocurrencies are a form of digital currency designed to exchange value within a decentralised computer network, without relying on any central authority such as a government or bank to uphold or maintain it.
The network hosting the cryptocurrencies is called Blockchain, as it is composed of a chain of virtual blocks that grows over time as all transactions that have ever occurred in the network are stored within these blocks.
This makes it into an incorruptible, transparent, secure, and open-sourced ledger or record of all the value ever exchanged, making it “an open book of truths”.
What are the advantages and disadvantages of crypto?
Covering all the pros and cons of crypto requires an entire book, but here we list the most important ones in this non-exhaustive list:
Freedom: Being available to anyone with an internet connection, crypto may be used in authoritarian regimes to bypass any value exchange restrictions that are keeping people poor.
As an example, in Venezuela, the use of the US dollar is illegal so people receive money from abroad in the form of cryptocurrencies that automatically track the value of the dollar. This helps the population avoid the 10,000% inflation rate of the local currency the Bolivar.
“Don’t Trust, Verify!”: Blockchain keeps a verifiable record of all transactions that ever happened in the network.
Questions like “Did Boris really buy that booze before the party?” or “Did Tesco really offset their carbon emissions appropriately?” become instantaneously answerable.
Decentralised Finance (DeFi): Having code as the only restriction, blockchain is the perfect place to innovate how we can transfer value more efficiently.
For example, exchanging ownership of digital art, music, or property has become possible through NFTs, without requiring any bureaucracy or verifier.
Bypassing Regulation: On the flip side, crypto may be used by bad actors to bypass regulation or make illegal transactions by using privacy blockchain networks that obfuscate transactions and asset ownership.
No accountability: A lack of regulation and KYC requirements means that there are also plenty of scams, and no accountability for bad actors, a bit like in the “wild west”. This means it requires a lot of experience and due diligence to navigate the crypto sphere effectively.
Carbon Footprint: And more relevant to this article, it is undeniable that powering certain crypto networks have a large carbon footprint, at least in absolute terms.
How much energy does crypto consume?
In a similar way to the internet, cryptocurrencies are hosted by a network of computers distributed all over the world that consume electricity.
The electricity consumption of each network depends disproportionately on how the network is secured, with there being two main types of consensus mechanisms:
Proof-of-Work (PoW) networks require specialised computers called ‘miners’ that consume a lot of energy solving extremely difficult mathematical problems to make it prohibitively expensive for malicious actors to corrupt the network while keeping it running.
Despite being the most robust in terms of security, it is slow and energy-intensive. For example, Bitcoin is estimated to consume approximately 170TW per hour of electricity, which is equivalent to that of Argentina or 0.5% of the world’s total consumption.
Proof-of-Stake (PoS) networks on the other hand, are hosted by normal PCs, which do many simple processes to host the network in a much faster, less energy-intensive way at the expense of being less secure to hacks.
For example, the largest PoS network Solana uses 11 GW per hour which is equivalent to the usage of 1,000 American households, which is many orders of magnitude smaller than that of Bitcoin.
What are the carbon emissions of crypto?
Since PoW networks like Bitcoin are disproportionately more energy-intensive, their emissions depend on how the electricity to run it is produced.
Unfortunately, much of the Bitcoin network is currently powered by fossil fuels, with most of the global “hashrate” coming from the U.S (particularly Georgia and Texas) with 37%, China with 21% and Kazakhstan with 13%.
Based on this geographical distribution, it is estimated that running the two largest networks: Bitcoin and Ethereum, emits approximately 170 MT of carbon dioxide per year, which is equivalent again to the emissions of Argentina.
This significant consumption means that crypto must become greener, or its advantages must be significant enough to warrant its carbon footprint.
Using crypto for Regenerative Finance (ReFi)
We have written about the carbon markets (Emission Trading Schemes) before and how they are an important mechanism in the fight against climate change.
Hosting this market within blockchain networks has the potential of ridding many of the problems that plague the existing carbon markets.
For example, purchasing good quality carbon credits to offset any personal or corporate emissions in the voluntary markets is not open to everyone and is certainly not transparent.
It is very difficult to verify the authenticity of many carbon credits and most must be bought using a broker that you are required to trust. Both of these problems could be solved by blockchain’s transparency and openness.
In a blockchain network, carbon may be easily purchased by anyone with an internet connection, and its quality is verified on the blockchain ledger.
Projects like Toucan have bridged thousands of tons of carbon into the blockchain, while others like Open Forest Protocol are making sure the projects are of high quality by uploading the satellite imagery and other data to prove it.
Taking it one step further, some cryptocurrency networks like Polygon have used these on-chain carbon credits to offset their existing emissions, essentially making them carbon neutral to ease any concerns.
Replacing Traditional Finance
Despite being true that crypto is a polluting industry, this is also the case for any industry that derives its energy from fossil fuels, including the current financial system.
Nations use a lot of energy printing paper money and storing gold in high-security vaults, while banks require physical branches that host cash machines and energy-intensive computer networks, without mentioning the bank workers who must commute to work, etc.
Gold being the most referenced real-world analogue for Bitcoin has an even larger energy consumption associated to its mining and production, which goes without mentioning the other environmental problems that gold mining poses.
How to make crypto mining green?
One of the side-effects of having computers ‘mining’ for Bitcoin is that tremendous amounts of heat waste is produced, which some of the most innovative crypto miners are using to their advantage.
In the Netherlands, this excess heat is being recycled to keep greenhouses warm in winter while earning the owners Bitcoin.
Also, given that the price of producing green energy is decreasing rapidly while those of fossil fuels are rising (especially as a result of the ongoing war in Ukraine), more miners are switching.
Surprisingly, in Q4 2021, it was estimated that over 58% of the Bitcoin Network is now powered by renewable sources of energy which tend to be green.
Warming your business by mining crypto?
It is legal to mine crypto in the UK, so there is no reason why you may not be able to do so while warming your premises in the process, especially if your energy supplier has access to green energy.
You may use the AquaSwitch Business Electricity Comparison tool to compare suppliers and adopt carbon neutral business energy.