Eco-Friendly Blockchain?

— By Tia Mrad

Cryptocurrencies are one of the biggest topics you can encounter in these past couple of years. But they do receive a lot of criticism regarding their large carbon footprint. Actually, last year, Elon Musk stated that Tesla will stop accepting Bitcoin as a payment method because of its environmental concerns.

Before diving into the subject, let’s highlight two fundamental terms:
Proof of work verifies crypto transactions through mining.
Proof of stake requires validators to hold and stake tokens to validate block transactions.

So why are cryptocurrencies so bad for the environment?

Cryptocurrencies are created by a complex process we call “mining”, which is basically computers solving complex math equations to enter new cryptocurrencies into circulation. Environmentalists are worried because of the power required to mine cryptocurrency. The process uses a high amount of electricity, in addition to high-powered computers that compete to verify transactions and mine, as well as non-renewable energy sources, mainly coal (one of the dirtiest fossil fuels) because of their low prices and reliability. Cryptocurrency farms were originally located in China because of the abundance of cheap and dirty energy. They later moved to the U.S. after the increase in regulations in China.

The large amount of electricity consumed by mining bitcoin isn’t much of a new thing by now. In fact, about 91 terawatt-hours of electricity are used annually for Bitcoin mining, which is more than Finland uses in a year (note that Finland has 5.5 million residents). Another way to put it: you do know how much they drink tea in the UK, right? Well, if we gather the energy consumed by mining bitcoin in a year and we split it into boiling water cups in the UK, it will be enough for 30 years. Crazy. Want to know what’s even crazier? Mining already generates 38 million tons of CO2 annually, which, alone, could raise the Earth’s temperature by 2 degrees.

One Bitcoin transaction validation would require almost 2004 KWh of electricity, which is the power needed to supply an average US household for about 69 years. Other cryptocurrencies that use the same proof of work system have the same energy consumption. Ethereum for example, which is the second most popular coin, would need the same electricity amount as an average US household would in a little under seven days.

In addition, the power plants can also affect the surrounding ecosystem. They draw millions of gallons of water to cool themselves and then discharge the water back into the lakes at a temperature higher than the normal one, which endangers the wildlife.

NFTs’ environmental impact

Just like cryptocurrencies, NFTs use a large amount of energy. Ethereum is the main blockchain used by NFTs. For now, Ethereum is still a proof of work (PoW) blockchain. It is transitioning from PoW to proof of stake (PoS) to reduce its energy consumption, but this task takes a great time. Ethereum is developing a new version, called Ethereum 2.0, which will lessen the overall energy consumption by 99.95%. Selling one piece of NFT on the Ethereum blockchain has a carbon footprint comparable to a one-hour flight.
Other than switching from PoW to PoS, NFTs transactions can become more sustainable by building most transactions on “layer 2” and then submitting them on the blockchain. The energy will still be derived from fossil fuels, but this form of transaction will need less energy.

How can crypto become more eco-friendly?

As mentioned previously, going from PoW to PoS is a step to an eco-friendlier blockchain as it reduces the amount of energy required. It also uses fewer hardware requirements, which means more people can become validators. This step makes a project more decentralized, leading to more security.

Some organizations are working on the sustainability of the blockchain. For example, Crypto Climate Accord has plans to switch from fossil fuels to renewable energy by 2025. Attempts have been made to use solar or wind farms in addition to renewable energy to power entirely the mining farms. Already existing coins might not be able to entirely justify the cost of new power systems, so the switch might be hard. New coin makers are working on their designs from the start.

Some environmentally friendly cryptocurrencies

(In this part, we’re talking about the coin’s environmental impact only. This is not financial advice.)

Solana: it uses a PoS model with smart contract functionality, along with its own innovation called proof of history. PoH is a method used to incorporate time into the blockchain. It is important in a blockchain to know how transactions are done and in which order, that is why Solana employs PoH. Also, Solana achieved carbon neutrality for the year, in addition to its speed and efficiency.

Cardano: the biggest PoS cryptocurrency and is highly scalable. Cardano’s energy consumption annually is the same as 600 U.S. homes.

Nano: low-energy crypto, providing a fee-free and sustainable digital money system. Nano is not made through mining, and it doesn’t record every transaction. Instead, it creates blockchains for everyone on the Nano network, which lets the users control their own accounts.

Chia: it uses unused disk spaces on laptops or computers in order to validate financial transactions. This is called the “farming” process, which uses the proof of space rather than the PoW used for mining and is more energy-efficient. Proof of space uses storage to earn cryptocurrencies instead of computation. But, since some countries are experiencing a shortage of hard drives, we will soon experience more and more electronic waste, which makes Chia less eco-friendly.

Other examples include IOTA, Stellar, Solarcoin, and so on…

Investing in environmentally friendly cryptocurrencies

Sustainability is surely important, but it certainly isn’t the only thing to look for when choosing the coin you want to invest in. The overall efficient and eco-friendly methods should not be eliminating the security of the chain. It is still difficult to know how secure these eco-friendly coins are. PoW is known to be very secure since it is the most tried and tested method, but PoS seems to be a very promising platform. Almost any project that does not uses PoW will use less energy but look at Chia; it is contributing to the e-waste in a large fraction.

No matter what cryptocurrency you want to invest in, there are a lot of factors to take into consideration: its security, energy usage, goals, the problems it solves, the team behind it… and no matter what you choose, always be prepared for the price changes and be cautious about how much you invest.