Mining cryptocurrencies like Bitcoin uses huge amounts of energy

Can a "green Bitcoin" help to solve the sustainability problem of cryptocurrencies?

photo_camera REUTERS/ ERIC GAILLARD - Bitcoin digital currency logo is seen in a shop in Marseille, France.

In the midst of a surge in demand for cryptocurrencies, especially in emerging markets, and an increased appetite for sustainable finance globally, efforts are underway to develop a so-called "green bitcoin", i.e. an environmentally sustainable cryptocurrency.

Last year proved to be a boom year for cryptocurrencies, as the pandemic forced many people to make payments online, which shifted them away from physical cash.

Indeed, as OBG has detailed, cryptocurrencies have experienced significant growth in emerging markets. According to statistics firm Statista, Nigeria was the leading country in Bitcoin and cryptocurrency adoption last year, and the firm associated much of this increase in demand with remittances, as in many cases people saw trading in alternative currencies as an effective way to circumvent perceived exchange rate overvaluations.

In the midst of a surge in demand for cryptocurrencies, especially in emerging markets, and an increased appetite for sustainable finance globally, efforts are underway to develop a so-called "green bitcoin", i.e. an environmentally sustainable cryptocurrency.

AFP/OZAN KOSE – Bitcoin

However, in a sign of its volatility, since this high water mark, Bitcoin's value halved, and stood at $34,365 on 29 June. However, current prices are still three times higher than before the boom.

There has also been a growing acceptance of Bitcoin as a legitimate payment method.

In early June, El Salvador became the first country in the world to adopt Bitcoin as legal tender, while similar proposals are also being considered in Paraguay.

While many see this as an exciting opportunity, the increase in acceptance has also raised concerns about the environmental footprint of cryptocurrencies.

Estimates vary on the energy consumption associated with Bitcoin mining, the process of creating new Bitcoin by solving complex computational puzzles through a "proof-of-work" principle, but the Cambridge Bitcoin Electricity Consumption Index, a tool created by researchers at the UK's University of Cambridge, calculated the annual total at 121.36 TWh, which is more than is consumed in Argentina as a whole each year.

REUTERS/EDGAR SU - Representación de la criptomoneda Bitcoin
Developing a green Bitcoin

These environmental concerns, which have coincided with a growing demand for the implementation of environmental, social and governance (ESG) principles in business, have ultimately led to efforts to create more environmentally sustainable cryptocurrencies.

In April, a group of private sector bodies, led by non-profits Energy Web, Alliance for Innovative Regulation and RMI, launched the Crypto Climate Accord (CCA), an initiative inspired by the Paris Climate Agreement that aims to decarbonise the cryptocurrency industry.

With 45 companies from the financial, technology, energy and climate sectors backing the agreement, those involved aim to ensure that 100% of cryptocurrencies' energy consumption comes from renewable energy by 2025.

This was followed in May by an announcement from UK cryptocurrency firm Argo Blockchain, a signatory to the CCA, and Canadian firm DMG Blockchain Solutions, that the two companies were working to launch the world's first clean energy Bitcoin mining pool.

Dubbed "Terra Pool", the planned initiative is a cryptocurrency mining platform powered exclusively by renewable resources.

Separately, in June, representatives of Swiss-based commodities trading company Mercuria said it was working with Bitcoin producers to supply them with renewable energy sources to help curb their carbon footprint.

REUTERS/EDGAR SU - Representación de la criptomoneda Bitcoin
Chia: the future of green cryptocurrencies?

One possible solution to help curb environmental impact is the cryptocurrency Chia, which was launched in February.

Instead of Bitcoin's proof-of-work principle, Chia is "grown" through a method known as "proof-of-space". In short, instead of being produced by performing complex mathematical puzzles, as is the case with Bitcoin, Chia is created by storing data on a large number of empty hard drives.

Proponents claim that this method is greener, more reliable and safer than others, as it consumes much less energy than other crypto mining processes.

However, despite these recent steps towards creating more environmentally friendly cryptocurrencies, there are several critics who are sceptical about its supposed sustainability credentials.

One of the main criticisms relates to the hardware needed to carry out crypto mining. Critics argue that even cryptocurrencies produced through renewable energy would still have a significant carbon footprint, due to the emissions generated in the manufacture of hardware such as computer processors, which are central to the Bitcoin mining process.

Such concerns also apply to supposedly less energy-intensive cryptocurrencies such as Chia.

Given the need for a large number of hard drives in the farming process, there is concern that widespread adoption of Chia will simply result in increased emissions and e-waste as a result of increased hardware manufacturing.

In one example of the complex challenges associated with creating more sustainable cryptocurrencies, industry media reported that, in some cases, chia farming had reduced the lifespan of a 512GB hard drive from a decade to around 40 days, ultimately leading to a significant increase in e-waste. which is likely to end up in landfill.

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