Climate change has become an important issue over the years due to concerns over environmental changes caused by the emission of greenhouse gasses int
Climate change has become an important issue over the years due to concerns over environmental changes caused by the emission of greenhouse gasses into the atmosphere. Conversations have even reached the crypto space, and blockchain technology is being considered a potential tool to reduce carbon emissions.
Cryptocurrencies like Bitcoin (BTC) and Ether (ETH) that use the proof-of-work (PoW) mining algorithm have come under scrutiny due to their alleged energy expenditure. To see where this scrutiny comes from, it first needs to be known how much energy is used when mining PoW cryptocurrencies.
Unfortunately, estimating the amount of energy necessary to mine Bitcoin and other PoW cryptocurrencies cannot be calculated directly. Instead, it can be estimated by looking at the network’s hash rate and the power usage of the mining setups of expensive graphics cards.
Initially, Bitcoin could be mined with a basic computer, but as the network matured, the mining difficulty increased, requiring nodes to use more computing power to mine a new block. Due to the increased power requirements, to mine Bitcoin today, one would need multiple graphics cards as well as cooling systems to stop them from overheating. This is what has led to the high energy usage of PoW networks like Bitcoin and Ethereum.
According to the New York Times, the Bitcoin network uses around 91 terawatt-hours (91 TWh) of electricity annually, which is more energy used than countries like Finland. Other sources put this number at 150 TWh per year, which is more energy than Argentina, a nation of 45 million people.
However, as mentioned earlier, calculating Bitcoin’s energy usage is not a straightforward task, and there have been disagreements about the actual energy usage of the Bitcoin network. For example, Digiconomist claimed that Bitcoin uses 0.82% of the world’s power (204 TWh) while Ethereum uses 0.34% (85 TWh). Ethereum developer Josh Stark disputed the accuracy of these claims and highlighted Digiconomist’s tendencies to place estimations on the higher end while pointing out data from the University of Cambridge that estimated Bitcoin’s actual consumption to be 39% lower (125 TWh).
Additional sources have agreed with Bitcoin’s energy expenditure being on the lower level. The Cambridge Bitcoin Electricity Consumption Index estimates that the Bitcoin network uses 92 TWh of energy per year. A research report by Michel Khazzaka also claims that traditional banking systems use 56 times more energy than Bitcoin.
R. A. Wilson, chief technology officer of 1GCX — a global digital asset and carbon credit exchange — told Cointelegraph, “To say that Bitcoin is ‘bad’ for the environment leaves a number of nuances and important conversations unexplored. It’s true that Bitcoin and other proof-of-work chains do consume larger quantities of energy than blockchains that operate on a proof-of-stake consensus mechanism. However, there are a number of other considerations to take into account when analyzing and understanding the energy consumption of Bitcoin and blockchain in general.”
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“For example, the sheer amount of energy consumed doesn’t directly equate to environmental impact. It is also important to understand where that energy is coming from. Currently, Bitcoin miners use around 55%–65% renewable energy, which is impressive for an industry so relatively young. Comparatively, the sustainable energy mix in the United States is only 30%. Bitcoin can, therefore, continue to incentivize the rise in renewable energy sources within the crypto mining industry and in the U.S. more broadly.”
There may be no clear consensus on the environmental impact of cryptocurrency mining on PoW networks. Still, there has been a push toward using blockchain to become more energy-efficient and improve the environment. As a result, sustainable energy sources for Bitcoin mining have also grown by almost 60% this year. Blockchain is also being used to help remove carbon dioxide and other greenhouse gasses from the atmosphere. In some areas, blockchain technology is being used alongside carbon credits to try to improve the atmosphere.
What are carbon credits?
It is common to see the terms “carbon offset” and “carbon credit” used interchangeably, but they have different meanings. A carbon offset refers to an action that intends to compensate for the emission of greenhouse gasses into the atmosphere. Examples of carbon offsets include planting trees, reforestation and using renewable energy sources instead of fossil fuels.
A carbon credit permits an organization to produce a certain amount of greenhouse gasses depending on how many credits they own. One carbon credit represents one ton of carbon dioxide or other greenhouse gasses. Organizations receive a set amount of credits, meaning they can only produce a limited amount of greenhouse emissions.
Entities that produce emissions…
cointelegraph.com