Blockchain and cryptocurrencies are revolutionising the financial world, promising innovation, transparency, decentralisation, and ease. However, the high energy consumption of this technology poses challenges to the climate crisis we face. The good news is that alternatives already exist to mitigate this impact, in a movement known as green blockchain.
According to data from the Cambridge Bitcoin Electricity Consumption Index, Bitcoin – the pioneering and most popular cryptocurrency – has an estimated annual consumption of 190.25 TWh. To put this into perspective, this amount is slightly higher than the total energy consumption of Malaysia in 2023.
It is precisely because of these staggering figures that green blockchain emerges, aiming to retain the advantages of this technology while adopting more efficient practices, such as using less polluting energy sources, carbon offsetting, and developing alternative consensus algorithms.
Environmental impacts of traditional blockchains
Before diving into green blockchain, it’s important to answer a key question: what explains the high energy demand of traditional blockchains? The answer lies in Proof of Work (PoW), the mechanism used by blockchains to validate transactions.
PoW works by engaging cryptocurrency miners in solving complex mathematical problems, which, once solved, validate the transaction of an asset. This requires the work of multiple high-performance computers in a network, consuming vast amounts of energy.
According to data from the U.S. Energy Information Administration (EIA), cryptocurrency mining operations typically employ between 10,000 and 20,000 mining units. Some of the largest can reach up to 100,000 units, meaning their main expense is energy consumption.
When we think about cryptocurrencies, another common environmental issue is the generation of electronic waste. According to a study published in the academic journal Resources, Conservation and Recycling in 2021, Bitcoin alone generated 30.7 kilotons of e-waste, with each individual transaction producing an average of 272g of waste.
The consequences mentioned are due to the constant evolution of technology, which renders hardware obsolete in a short period, as well as the high performance at which these machines operate, causing their lifespan to be relatively short – around 2 years – requiring constant replacement.
Green Blockchain: The Search for Alternatives
Green blockchain emerges to explore more sustainable solutions. To achieve this, it relies on three key pillars:
Energy efficiency
The main measure being taken to change the current scenario is the replacement of the mechanisms used to validate transactions. Currently, the most well-known alternative to replace PoW is Proof of Stake (PoS).
This technology generates blocks based on the amount of coins locked in the network, selecting the coins for transactions, and consuming 99.9% less energy than the PoW model.
Some of the leading cryptocurrencies adopting PoS include Ethereum 2.0 (a pioneer in the transition), Solana, and Cardano. However, a recurring criticism of PoS is the skepticism surrounding the security of this model.
Another interesting mechanism that has emerged is Proof of Authority (PoA), where there is no block mining, but instead, transactions are approved by pre-selected validators, such as governments and companies.
This model has almost negligible energy consumption and can be used in scenarios with high-trust validators, as there is no decentralisation, a key characteristic in cryptocurrencies like Bitcoin. Although it is a valid alternative for specific cases, it becomes unfeasible for public cryptocurrencies.
Renewable energy
Another solution being explored is the use of renewable energy to power cryptocurrency mining. One example is Norway, which uses 100% renewable energy to fuel the PoW processes taking place within its territory, according to a report by Arcane Research. However, it is important to note that all forms of energy generation can impact the environment.
Environmental offsetting
The third pillar of green blockchain is the pursuit of neutralising the carbon emissions generated by cryptocurrencies. A notable example in this area is Algorand, the first carbon-negative blockchain. This is made possible through the use of the Pure Proof of Stake protocol and partnerships with organisations like Offsetra, which invests in clean energy projects, forest protection and conservation, as well as reforestation initiatives.
Challenges ahead on the road to sustainability
Pursuing advancements in this area is not only advisable but essential. Cryptocurrencies with high energy consumption are unsustainable in a world that needs more responsible practices to mitigate the environmental crisis. However, some criticisms highlight challenges that still need to be addressed on the journey towards a more eco-friendly model.
In addition to concerns about security, PoS also faces criticism for promoting the centralisation of wealth. This happens because, in this model, those who hold more tokens or assets have greater influence over the network, concentrating key decisions for its operation in the hands of a few.
Another challenge is aligning the demands of cryptocurrencies with environmental regulations set by governments, so that both can work together towards an appropriate solution. One example in this direction comes once again from Norway, which is already having advanced discussions on temporarily banning the establishment of new PoW-based centres within its territory.
These points, of course, should not be used as an argument against the move towards greater sustainability. On the contrary, they are crucial issues for those aiming to strengthen green blockchain and are committed to finding solutions. The trend, in fact, is that progress will continue to grow.
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