Eco Cryptocurrency: What's the "Greenest" crypto?
It’s well-known that cryptocurrency, for all its wonders, positives and promises of a fairer future, has a significant problem associated with it: mining crypto, especially Bitcoin, consumes a considerable amount of electricity. Is it time that we start thinking about eco cryptocurrencies?
The environmental impact of cryptocurrency is not a new issue, though it did just get a lot of media coverage, so it may be new to folks who do not follow crypto. Crypto is also not an outlier among valuable commodities that require a great deal of energy to acquire, like mining gold. But while it seems logical to people that mining gold requires the expenditure of energy, crypto somehow “feels” like it shouldn’t.
With all of the technological innovation the crypto world has at its fingertips, how difficult would it be to develop an eco cryptocurrency, and who are the current frontrunners in the eco crypto market?
How to measure the environmental impact of cryptocurrencies
As stated in Fortune, there remains debate “over the most accurate way to define and measure the carbon footprint of cryptocurrencies. What is clear is that the decentralized nature of crypto requires each transaction to be logged on the blockchain and distributed to and processed by tens of thousands of computers—resulting in significant energy use for every transaction. Not all cryptocurrencies are as energy-consumptive as Bitcoin, but each has its own unique carbon footprint, and they all contribute to the climate crisis to varying degrees.”
There are ways to mitigate this, such as stationing computer farms in cold places where the heat they release can be recycled. But the issue remains and is a reasonable concern for those intrigued by crypto but also conscientious about the environmental impact of cryptocurrency.
There are various ways to measure energy consumption, with kilowatt hours (kWh) per transaction often cited. Bitcoin uses 700, while Ethereum uses 62.65. Proof of Stake blockchain protocol is estimated to be 99% more efficient than Proof of Work (used for Bitcoin), so eco currencies with this approach may be favored.
With this in mind, you might wonder which cryptocurrencies are the “greenest,” requiring the least energy to mine?
The cryptocurrency NANO has been flashing its credentials as a possible eco cryptocurrency, and was up 90% the day after Elon Musk announced, on 13 May, that Tesla would pause accepting BTC for car purchases due to consumption concerns.
It seems unlikely that Musk, who purchased 1.5 billion dollars worth of bitcoin with Tesla capital, was previously unaware of Bitcoin’s energy-intensive mining process. And the Tesla CEO has since played down his rhetoric on Bitcoin, with some commentators pointing out the coincidence that Musk’s latest tweet came out at around the same time that the BTC price started to approach 34,000 dollars (the average BTC purchasing price of Tesla).
But either way, Tesla stated that it was open to accepting cryptocurrencies that use less than <1% of what BTC does per transaction. Fortune magazine listed NANO as rising sharply as BTC fell, in part due to its supposed green appeal. The block lattice technology on which it is built is “energy efficient,” according to LeafScore.
It’s difficult to determine whether “greenness” is a motivating factor for someone investing in one currency over another, but it can certainly contribute.
The barrage of articles about eco currencies published in the days after Musk’s tweet are both the cart and the horse: the choice of topic is indicative of editors believing that the public are interested, and the quantity of articles will encourage the public to be more interested, even if they weren’t before. It is a sign of the zeitgeist (and, let's be honest, of SEO ratings) when a website like Leafscore, which is committed to fighting climate change but has no particular focus on crypto, or the digital world for that matter, publishes an article entitled “The 15 Most Sustainable Cryptocurrencies for 2021.”
Ripple (XRP) also has claims to light cryptocurrency energy consumption, since all XRP was pre-mined and the estimated KWh is a comparatively miniscule 0.0079 KWh. Stellar (XLM) was also pre-mined, meaning that, for such currencies, any mining damage was done in the past and the only future energy issue will be with transactions.
Algorand outpaced the latest Musk-fueled wave of concern by announcing, on April 22, that it was fully carbon-neutral.
Musk-championed Dogecoin is also relatively efficient, averaging 0.12 kWh per transaction--that’s a lot more than Ripple, but much less than Bitcoin and Ethereum, at least by this diagnostic.
Eco crypto to the rescue? Examples of environmentally-friendly cryptocurrencies
A new player on the crypto market, Chia, promotes itself as a “green cryptocurrency” and uses neither Proof of Work nor Proof of Stake but Proof of Space and Time (essentially requiring many empty, large hard drives to mine--empty space rather than massive amounts of energy). Whether it lives up to being an eco cryptocurrency, despite requiring many external HDs, remains to be seen. It certainly places sustainability at the fore, even choosing a logo that includes an arm made of leaves reaching out to a budding plant. No wonder they preferred the term “farming” to “mining.”
Then there is a subcategory of coins that are specifically designed to be green, having optimistic beginnings, but then never really taking off. Take Solarcoin, for example, as an attempt at an environmentally friendly cryptocurrency. 1 Solarcoin was mined for every Megawatt hour generated by solar technology, which was a neat idea, but the project appears to have stalled.
Likewise for BitGreen, founded and overseen by a non-profit, which sought to allow users to earn their coin by participating in energy-saving activities, like car sharing or buying sustainable coffee. The coin was only useful for transactions within a set number of partner websites, but their idea to incentivize a user base to behave sustainably by rewarding them with an eco cryptocurrency has its merits, and is something that a more robust project could build upon.
Eco crypto project Power Ledger has developed software that allows consumers and producers to keep track of every kilowatt of energy, and a blockchain-based energy marketplace that incentivises consumers to switch to green energy. The project is still operational today, but has not yet become the de facto eco cryptocurrency in the market.
The other point to keep in mind is how we rate energy consumption. Bitcoin may grab the headlines because it’s the household name crypto and the quantity of its transactions eclipse all others. But, as Leafscore rightly states, “Many smaller cryptocurrencies, for instance, naturally have a far lower energy footprint because they involve far fewer daily transactions compared to Bitcoin. Scale them up, however, and they may be just as bad, if not worse.” It’s important to keep in mind that cryptos that are referred to as “green” sometimes aren’t quite as green as they may seem. Many are new and small-scale, which can mean a centralized, small network that is untested at scale.
Bitcoin’s energy use is borne from its extremely tight security. As the Bitcoin network grows, it becomes exponentially more difficult and expensive to attack, thereby dissuading attackers and protecting its constituents. That energy used by Bitcoin is securing over $1 trillion in value that has no history of being compromised--that’s a suit of armor that no other asset can boast.
Alternative Ways to Go Green
Crypto companies may look to offset their carbon footprint in other ways, like planting a tree for every coin or donating to appropriate environmental agencies. This is the moral thing to do, but it also makes good business sense. The Harvard Business Review stated that a product’s market size grows 5.6 times faster when the product is seen as environmentally sustainable. A study by Capgemini found that 79% of consumers will alter their normal product purchases in favor of companies with environmental and social policies that mesh with their own.
For now, it is important to understand that crypto mining is not so different from the mining of other resources, in terms of its electricity requirements. But currencies vary in the amount of energy needed for mining.
It is difficult to keep track of statistics, and be assured of their reliability. While it may be tempting to jump on “green” currencies, keep in mind that tried-and-tested cryptos are likely to be safer. And if part of the reason you’re interested in crypto is for a decentralized, borderless, non confiscatable and proven secure currency, then Bitcoin remains your best bet.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.