For the all upside to crypto assets, Bitcoin was not quite designed with environmental efficiency in mind. It's time to have an honest conversation about curbing crypto's growing carbon footprint.
Like many technologies, crypto has the potential to change the world. Crypto assets, smart contracts, and Decentralised Finance (DeFi) are forever changing the way we do business.
Meanwhile, Non-Fungible Tokens (NFTs) are redefining the concept of ownership in the digital age.
Crypto's Achilles’ heel is the vast amount of electricity that it chews through each year.
Most of this is due to Bitcoin mining on powerful computers, solving extremely complex mathematical problems when storing transaction details in the underlying blockchain.
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This "proof of work" creates more Bitcoins, but the amount of work required to generate a new Bitcoin continues to rise, meaning Bitcoin mining consumes more and more power each year. NFTs have come in for particular criticism due to the load they place on the blockchain.
Fight the power
Of course, it's not really a secret. We keep hearing that Bitcoin mining consumes as much power as a medium-sized country.
WATCH BELOW: Inside Australia's largest Bitcoin mining operation
The recent crypto market slump has seen electricity consumption ease off slightly, but it will no doubt rise again as we continue to see broader adoption of digital assets.
With Bitcoin mining's vast energy consumption comes a large carbon footprint, with almost two-thirds of the world's mining relying on fossil fuels.
As an industry, we need to seriously consider greener alternatives to powering what we envision will be the future of finance.
Keep it in perspective
Whilst recent headlines about the energy consumption of crypto assets like Bitcoin may seem alarming, it’s important to put these into context.
When compared to some aspects of traditional banking services such as syndicated loan contracts which are still heavily paper-based, crypto and blockchain are helping automate some of these processes and in turn, combat this waste.
Meanwhile, the traditional banking system takes an even greater toll on the environment, consuming around 263.72 TWh/y, with banking data centres, card network data centres, bank branches, and ATMs being the most energy-intensive.
Cryptoassets like Bitcoin eliminate the need for this kind of power-hungry infrastructure, all while offering financial freedom to people worldwide.
Call for change
None of this is to say that the crypto community can't do more to protect the environment.
Even Tesla founder Elon Musk, who has long been bullish on the potential of crypto, has been forced to acknowledge its environmental impact, recently back-flipping on Tesla's decision to accept crypto payments for electric vehicles.
Meanwhile, China cited climate concerns during its recent crackdown on Bitcoin mining. It's yet another stark reminder that crypto's carbon footprint can't be ignored.
It's fair to say that, left unchecked, crypto could undo some of our good work in combating climate change. It could also undo all our hard work to establish crypto as a legitimate player in the financial world.
If crypto can't clean up its act, it's only a matter of time before it suffers more high-profile setbacks like Tesla's snub. And before government regulators follow China's lead and threaten to pull the plug in order to meet their environmental targets.
This alone should be an incentive for the industry to take action. Commercially, it just makes sense to make our blockchains greener.
Also read: Why Bill Gates is worried about Bitcoin
A new green deal
Thankfully, crypto can go green – both by reducing Bitcoin's reliance on fossil fuels, and by embracing alternative crypto technologies which consume far less power.
The will is certainly there, with the 45-member – inspired by the – aiming to see the crypto industry reach 'net zero' emissions by 2040. Meanwhile, the Bitcoin Clean Energy Investment Initiative supports companies that help drive the adoption and efficiency of renewables within the bitcoin ecosystem.
We're seeing the rise of fully sustainable bitcoin mining operations. Those in Quebec rely on hydropower. Meanwhile, El Salvador – which recently became the first nation-state to make bitcoin legal tender – has announced plans to mine Bitcoin using volcanic energy.
Keep in mind that Bitcoin is not the be all and end all of crypto. Further afield, the wider community is working hard to improve crypto's green credentials.
Ethereum is the second-largest crypto asset by market capitalisation, and is the key platform underpinning NFTs and DeFi. By the end of 2021, Ethereum will have finished transitioning from a bitcoin-style "proof-of-work" mining system to a "proof-of-stake" approach.
The Ethereum Foundation says the shift will slash the Ethereum blockchain’s energy use by 99.95 per cent.
Ethereum isn't alone, with other high-profile proof-of-stake crypto assets including Cardano, Polkadot and EOS. It's not the only alternative, with other crypto assets like Ripple and Stellar use an energy-efficient 'Federated Byzantine Agreement' to record transactions.
Along with these are a new generation of green-friendly crypto assets like SolarCoin and Power Ledger, which are designed for trading renewable energy.
It's true that the energy demands of traditional proof-of-work-based coins have seen crypto get off on the wrong foot, but it's not too late to turn things around.
While challenges lie on the road ahead, the future of crypto is clearly green.