Remember when Elon Musk’s Tesla started accepting Bitcoin as a means to pay for your favorite electric car? That lasted but a glorious few days when the company backtracked soon after, with Musk claiming that the largest cryptocurrency by market capitalization was not eco-friendly.
If Bitcoin and other cryptocurrencies had not captured the headlines in the past as heavy carbon producers, this move certainly did.
One might think that cryptocurrencies, with their digital nature, are friendlier to nature as there is no printing of paper money and minting of metallic coins. Digitization is, after all, considered to be more eco-friendly since it generally produces a lot less waste than the physical alternative. So how come blockchain systems are being targeted for their dirty nature?
This is because of how some of the largest blockchain networks such as Bitcoin and Ethereum work. These use a consensus system known as Proof of Work (PoW). Miners which validate transactions and create blocks do so by solving complex mathematical equations. The first one to get it right gains the right to append a new block to the blockchain, thereby gaining the transaction fee and the block reward. But winning is not that easy. Miners increase their chances of being the first by committing more computing power to solve increasingly complex puzzles. In this computing arms race, the more power they have, the more their chances of winning.
As more miners join a network, however, the computing power needed to maintain the probability of finding a new block increases, as the difficulty algorithm adjusts to ensure blocks are produced at a steady rate over time. Thus, the only option left for miners is to keep on adding computing power.
Mining Bitcoin or Ethereum was once as easy as buying a more powerful laptop or PC. Today, the only plausible way for miners to run a profitable business is to operate vast mining farms with rows and rows of dedicated mining hardware known as ASICs.
The result? Massive energy consumption to power and cool these machines that produce a lot of heat waste. This energy consumption is the source of the high carbon footprint. Bitcoin alone is estimated to produce around 23 million metric tons of carbon dioxide a year, larger than that of Portugal.
How to go Carbon Neutral?
With blockchain consuming so much energy, there is a global call for reducing their footprint. So how can blockchain ecosystems and companies, which rely on their computing farms, go carbon neutral?
The answer is twofold, with the answer consisting of two parts: a short term solution and a longer term one.
The short term solution is compensatory, encouraging miners to use carbon offsets. These are credits that different companies use when they capture carbon dioxide from the atmosphere and clean it. The credits are then sold off to other industries and companies which they can use to offset their carbon-producing activities. In a sense, the miners (and blockchain companies, for that matter) are encouraging the carbon-reducing industry and start playing their role as socially responsible companies.
But this doesn’t solve the real problem which still remains: producing less carbon. One solution is to overhaul the current power-hungry PoW algorithm. Proof of Stake (PoS) is already widely being used in the blockchain industry as a good alternative since it requires very little power to maintain the network. Ethereum’s next iteration ETH2.0 is already working towards it. According to Vitalik Buterin, the creator of Ethereum, a shift towards PoW will reduce the energy requirements of the second-largest blockchain ecosystem by 99%. Bitcoin proponents argue, however, that this would come with a significant security sacrifice, as the only way to defeat or break the Bitcoin network on PoW would be with an unfeasible amount of resources that currently lies beyond the capacity of any known entity.
But That’s Still Not Carbon Neutral
Yes, that’s true. Let’s take the documented case of Bitcoin again. Even if the same reduction of energy requirement (and hence carbon production) is applied to Bitcoin, the largest crypto network in the world would still produce 230,000 tons of carbon a year.
So how can blockchain systems and companies go carbon neutral? The answer lies in using the combination of energy-efficient consensuses such as PoS and carbon credits. The former will drastically reduce carbon emissions and the credits can be used to offset the amount still being produced. Lastly, encouraging miners to use renewable energy sources like hydro, solar and geothermal will further help in carbon emission reduction.
But our titular question remains unanswered, should blockchain companies go carbon neutral? Earth is our only home. The more we damage its delicate biosphere, the more we put ourselves at risk. And in an age where corporate responsibility is expected from consumers, blockchain companies would do well to seek cleaner routes to the future.
In short, yes, they should.