Sustainable Crypto?
This week, I’m delving into the environment vs. crypto. Both are overheating these days, and so are the conversations around this topic.
With crypto firmly in the headlines, questions have been emerging for a while regarding the environmental impact that its energy consumption has, and this has fuelled my curiosity to understand the topic in more depth. Consider this a short review from an earth and crypto enthusiast who is keen to find out how you can both have your cake and eat it.
What is impact?
The majority of cryptocurrency environmental impact comes from mining to support proof-of-work models. This is computationally intensive, and whole industries have been created around improving this computation, from dedicated hardware to energy consumptions. The argument is both about the absolute amount of energy used (widely accepted it’s high), and the sources of energy.
The energy drain argument: Crypto uses a lot of energy comparatively to some international companies and some states, and provides benefits to a small percentage of the population. Therefore, it’s wasteful.
A recent study from the University of Cambridge, which has been widely circulated in the media, puts Bitcoin energy consumption at a level higher than whole countries, like Argentina or Sweden.
The invisible hand argument: In an environment of fixed rewards, participants will self-incentivize to reduce costs. Renewable energy is cheaper, and the increased demand from crypto mining will support more demand for renewable energy. Therefore, it leads the clean revolution.
Miners are primarily located in cold countries with plentiful green energy, and an estimate from the same source indicates in excess of 40% of the mining energy is green.
If I can summarize them in two sentences, it should be clear these popular arguments are not nearly nuanced enough on their own. Some interesting commentary below.
Obligatory CBECI reference. Energy usage, as estimated by Tezos, and a cautious view from GlobalLandscape.
Forbes’s balanced article, Coinbureau’s Guy doing some fact-checking
Is it worth it anyways?
Whereas value is not a function of price, perceived value is reflected into the price of assets and is often used as a proxy. As per Forbes, The GDP of Ukraine, is around $150 billion, whilst the value of all mined bitcoin is over $1tn.
This is another topic I am yet to make my mind up on is whether the environmental impact is worth the benefit of the technology to the world. The pragmatic reality is that a lot of the existing industries have a negative impact on the world, and crypto is being upheld to the standard of where we’d like to be environmentally, and not where we are. Radical transparency comes with higher standards. That’s okay if you can stand the scrutiny.
Bitcoin.org quick take vs. banking, and Forbes again on the power of narratives in this debate.
Don and Alex Tapscott’s book on the potential of Blockchain and the various application of the underlying technology.
Whereas it’s difficult to put a number of the cost of innovation, the crypto industry has already provided a technological leap to the banking, payments and financial industries. Therefore, an interesting externality of this conversation is that banking, gold production and tech companies’ environmental impact have been brought into the public eye, as crypto is becoming more of an alternative to the traditional financial system.
How to reach consensus?
Whereas for the casual observer, Bitcoin = Cryptocurrencies, a quietly emerging trend in 2021 is a move of hearts and wallets away from Bitcoin and into the broader crypto ecosystem. Bitcoin dominance by market cap dropped from over 70% at the start of the year to a mere 44.3% at the time of writing. Of the coins catching up (most notably Ethereum, Polkadot, ADA, BNB, XRP) many are targeting a different consensus mechanism that then computationally intensive Proof-of-Work, iterating from the original blockchain design. This adds nuance to the Bitcoin vs. the environment debate, and also allows for the opportunity to be exposed to the crypto environment with a consensus mechanism that suits your environmental concerns.
All of the crypto consensus algorithms are ultimately a way to establish trust on the internet (where everyone knows you’re not a dog..!). Whatever the methodology, you need to prove yourself worthy of trust to contribute to validating the blockchain.
Proof of work = I need to prove I’ve done work to establish trust (in the case of bitcoin, the work is solving a computationally and energy intensive math puzzle). Think of it as working hard for that promotion.
Proof of stake = I need to prove I hold a stake in the chain, by holding the coins of the chain. With a variant of Delegated Proof of Stake where you can pool owned coins and delegate someone you trust. Think of it as voting rights in a company.
Proof of authority = I need to prove my identify should be trusted based on my reputation. Think of it as uber ratings.
A few others exist but they are less popular.
Videos on POW vs. POS from Binance, and an energy comparison from Cointelegraph.
Consensus mechanisms at a glance, courtesy of Coindesk, Hackernoon. Wired comparing POW and POS env. impact
Contributing to sustainability?
There are a lot of sustainability enthusiasts among crypto fans and professionals. There is a series of projects who are making use of the emerging technology to improve the way that we interact with our environment. A few projects to get an insight into
- EnergyWeb is leveraging blockchain and IoT to support low-carbon energy markets and their efficient usage, and helping crypto holders de-carbonize their investments. In their words.
- Green Energy Mining companies — Environmentally friendly crypto mining, based on green energy is becoming a welcome trend.
- Crypto Climate accord — looking to achieve net-zero emissions for the entire crypto industry (a respectable if not an easy feat!)
As Appolo 8 travelled further into the darkness of space, one of the most striking images they took was that of the fragile, finite, blue Earth.
As the crypto markets are metaphorically going to the moon, we have the responsibility to ensure their impact on earth is seen in perspective.
The official crypto article ending / disclaimed is to ‘Do Your Own Research’. Of all topics this is one really worthwhile to do so, and create a nuanced view of this topic as you delve into the crypto currency environment. I am keen to hear where that research leads you!
