Blockchain technology is quickly becoming a viable option for companies looking to lessen their carbon footprints and better the planet.
Climate change has become a big deal over the years because of worries about environmental changes caused by the release of greenhouse gases into the air. People have talked about blockchain technology as a way to lessen humans’ damage to the environment. This talk has even spread to the cryptocurrency world.
People have said that the proof-of-work (PoW) mining algorithm used by cryptocurrencies like Bitcoin and Ether uses too much energy. To understand why this scrutiny is happening, we need to know how much power is needed to mine Proof-of-Work (PoW) cryptocurrencies.
As of now, there is no easy way to figure out how much energy is needed to mine Bitcoin and other Proof-of-Work (PoW) cryptocurrencies. Instead, it can be estimated by looking at the network’s hash rate and how much energy mining rigs with expensive graphics cards use.
As the network grew older, the difficulty of mining went up, so it took more processing power from nodes to mine a new block of Bitcoin. Due to the increased power needs, it now takes more than one graphics card and a complex cooling system to mine Bitcoin successfully. This is why Proof-of-Work networks like Bitcoin and Ethereum use so much electricity.
The New York Times says that the Bitcoin network uses the same amount of electricity as 91 TWh per year, which is more than what some countries use in a
year. According to other sources, which put the number at 150 TWh, this is more energy than the 45 million people in Argentina use in a year.
But, as was already said, figuring out how much energy Bitcoin uses is not easy, and estimates of how much energy the Bitcoin network uses have been different. Digiconomist says that Bitcoin uses 0.82 percent of the world’s electricity (204 terawatt hours), but Ethereum uses only 0.34 percent (85 TWh). But Josh Stark, an Ethereum developer, said those numbers were wrong. He said that Digiconomist tends to overestimate and that data from the University of Cambridge shows that Bitcoin’s actual consumption is 39% lower (125 TWh).
Other sources have confirmed that Bitcoin doesn’t use a lot of energy. The Cambridge Bitcoin Electricity Consumption Index says that the Bitcoin network will use 92 TWh of energy annually. Michel Khazzaka did a study that found that traditional banking systems use 56 times as much energy as Bitcoin.
R. A. Wilson, chief technology officer of 1GCX, a global digital asset, and carbon credit exchange, said that saying Bitcoin is “bad” for the environment leaves out a lot of details and important conversations. Proof-of-work blockchains, like Bitcoin, need more power to run than proof-of-stake blockchains. But there are many other things to consider when figuring out how much power Bitcoin and blockchain need.
It’s possible that people don’t all agree on how mining cryptocurrency on PoW networks affects nature. Still, blockchain technology has been pushed to cut down on energy use and improve the quality of the environment. This year, the number of Bitcoin mining options that use renewable energy has grown by nearly 60%. With the help of blockchain technology, carbon dioxide and other gases that trap heat in the atmosphere are being taken out of the air. Some places use carbon credits and blockchain technology to help the environment.
What are these things called?
Even though they mean different things, “carbon offset” and “carbon credit” are often used similarly. A carbon offset is a way to compensate for the damage that a previous action did to the environment. Carbon offsets can be done in many different ways, such as using renewable energy sources or planting trees.
The number of carbon credits a company has limits how much greenhouse gas it can put into the air. One carbon credit can make up for tons of carbon dioxide or other greenhouse gases. In exchange for a set number of credits, businesses can release a certain amount of greenhouse gases.
Organizations that put out more pollution than they are allowed to just buy more credits, while those that put out less pollution than they are allowed to can sell their extra. The plan works because it gives polluting companies a financial reason to reduce their greenhouse gas emissions. If they stay under the cap, they can save money or make money (by selling credits), but if they go over the cap, they lose money.
Wilson says, “The carbon offsets industry has the potential to grow into a multitrillion-dollar market in the next few years, but it faces problems like fraud and duplicate credits right now,” He thinks that blockchain technology can help. The immutability and security of blockchain technology can help solve these problems by ensuring that all transactions involving the sale of carbon credits are recorded accurately and clearly.
Even though blockchain technology can’t solve these market problems on its own, it can work with other infrastructure services like digital exchanges, a global registry, and AML/KYC for purchase, creation, and retirement to greatly improve bottlenecks.
How does blockchain technology help businesses reduce their pollution? EarthFund is one of these sites. It lets people give their cryptocurrency, most often Tether (USDT), to charities that work to protect the environment. The platform also has a Decentralized Autonomous Organization (DAO) and a treasury where members of the DAO can vote on how the money should be spent. Smaller groups within the ecosystem decide which donations are most important. Some ways that are being looked into to improve the natural world are carbon capture and storage, using renewable technologies, and practicing conservation.
Toucan is another platform with tokenized carbon credits or cryptocurrency tokens backed by real carbon offset credits. Base Carbon Tonnes record carbon offsets on the blockchain (BCT). Mark Cuban said in November 2021 that he was
offsetting his carbon footprint by buying and storing BCT tokens equal to $50,000 in carbon offsets every 10 days.
Blockchain technology has been looked into as a way that traditional institutions and the government might be able to cut down on carbon emissions. At the Middle East and North Africa Climate Week last year, the UN Environment Programme and other governing bodies talked about how blockchain could be used to fight climate change.
It was a big deal when Algorand said in April 2022 that its blockchain was completely carbon neutral. This is made possible by the coin’s pure proof-of-stake mining algorithm, which doesn’t use miners but instead picks validators randomly to check each new block.
The Bitcoin musicians talk about how they made NFTs and OpenSea in a Proof-of-Work world.
Crypto companies are working to improve the ecosystem in several ways. These include donations to projects that remove carbon that can be tracked on the blockchain, tokenized carbon credits, and carbon-neutral blockchains.
Finally, Ethereum 2.0 is coming, which will change the blockchain network’s consensus algorithm from proof-of-work (PoW) to proof-of-stake (PoS) and add other improvements. Since Proof of Stake doesn’t use mining hardware to verify blocks, it uses much less power than other systems. If the network needs less energy to work, less carbon dioxide will be put into the air when fossil fuels are burned.