The crypto ecosystem has come under several criticisms in recent years; one of the most notable is the energy-intensive nature of mining digital assets such as Bitcoin. With the world moving towards a green economy, critics have been arguing that Bitcoin’s Proof-of-Work (PoW) consensus has significantly increased the amount of global power consumption.
But is that really the case? According to an estimate by the Cambridge Bitcoin Electricity Consumption Index (CBECI), crypto mining consumes 127.48 terawatt-hours (TWh) per year. While this amount is equivalent to what some countries use annually, it is still a drop in the ocean compared to the energy allocated towards the mining of precious metals.
For instance, gold mining alone consumes around 131.9 TWh, not to mention the emissions from the excavation machines. A recent report by the World Gold Council (WGC) suggested that these emission levels need to be reduced by close to 80% for industry to be in line with the ‘below two degrees celsius’ requirement of the Paris Climate Agreement.
That said, we cannot ignore the fact that mining PoW cryptocurrencies like Bitcoin currently accounts for 0.59% of the total electricity consumption. This is quite a high figure, given that digital assets are still in their nascent stages of innovation. What happens when more people adopt PoW ecosystems?
A Greener Crypto Ecosystem
Despite the ongoing global markets bloodbath, the crypto market cap has been resilient, now well over $1.2 trillion. This calls for stakeholders to start paying more attention towards other investment factors, including the environmental and social aspects. Previously, Bitcoin has come under attack by prominent personalities such as Elon Musk, with Tesla reviewing its move to accept BTC payments unless the industry pivots to renewable energy sources.
“When there’s confirmation of reasonable (~50%) clean energy usage by miners with a positive future trend, Tesla will resume allowing bitcoin transactions.” noted Elon back in June 2021.
Following these developments, some innovators in the crypto ecosystems have shifted their focus towards building more energy-efficient blockchains. Ethereum, for example, is in the process of shifting from its Proof-of-Work algorithm to a Proof-of-Stake (PoS) ecosystem. This move will replace the energy-intensive mining machines with on-chain validators, effectively reducing the amount of power required to produce new ETH blocks.
However, from the look of things, it might take longer than expected for the Ethereum PoS merge to happen. Given that it is the leading DeFi and NFT chain, the delay means that most crypto projects will take some time before going fully green. But that does not have to be the case, alternative Layer-1 chains like Qtum are introducing smart contract building ecosystems that use little to no energy.
The Qtum PoS blockchain is one of the pioneer PoS chains to feature an environmental-friendly Dapp building platform. This Layer-1 chain leverages Bitcoin’s UTXO model for security while enabling integrations with several virtual machines, most notably the Ethereum Virtual Machine (EVM). In doing so, Qtum has managed to launch a business-oriented smart contract platform that takes into account Environmental, Social, and Governance factors.
As we usher in the next era of crypto innovations, it is a no-brainer that all involved participants have to put environmental issues at the forefront. This will not only ensure that cryptocurrencies play a role in combating global climate change but attract favour from regulators and die-hard critics who base their argument on energy consumption.
Cryptocurrencies have survived all sorts of attacks over the past decade (fundamental and technical); the energy consumption debacle is not as huge as some people portray it. Infact, the World Economic Forum (WEF) recently posted a blog debunking the narrative; as per the report, the value proposition of crypto assets is far much bigger compared to the energy (input) allocated towards crypto mining.
"We must remember this context of crypto’s value in non-western societies when we discuss crypto’s energy footprint. Crypto uses energy to provide an alternative, borderless and decentralized store of value. In order for crypto to be all of those things, it needs to be transparently distributed to the rest of the world.” reads the report.
That being the case, it makes sense for crypto innovations to use some energy in ensuring ledger continuity and immutability without involving a third party. However, the ultimate solution is for crypto projects to start building on blockchain ecosystems that have already launched green ecosystems.