Crypto Sojourn to Green

Cryptocurrencies like Bitcoin and Ethereum have come a long way since they were launched a decade ago. From being hailed as the currencies of the Internet, they have acquired the status of volatile digital assets. In the early years, mining Bitcoin required just a laptop but the same no longer remains a viable option now as the amount of power necessary to generate Bitcoin has exponentially gone up.

At present, Bitcoin, the world’s largest cryptocurrency, consumes an estimated 133.64 terawatt-hours of electricity annually—more than used by Argentina, a nation of 45 million people. Its biggest competitor, Ethereum, on the other hand, consumes about 78.01 terawatt-hours of electricity per year, which is comparable to that of Chile, according to Digiconomist’s Bitcoin and Ethereum Energy consumption Index.

This huge thirst for electricity comes from proof of work (PoW) consensus mechanism.The latter is a type of mining, wherein powerful computers race one another to process transactions, solving complex mathematical problems that require quintillions of numerical guesses a second. As a reward for this authentication service, miners receive new coins, providing a financial incentive to keep the computers running.

The growing concern over the harmful effect of crypto mining on the environment has led many countries to not just ban mining but outlaw this cryptocurrencies altogether. These include countries like Algeria, Bangladesh, Egypt, Iraq, Morocco, Oman, Qatar, Tunisia, and China. The latest country to ban crypto mining is Russia.But it’s not just countries who have taken note of the harmful impact that cryptocurrencies leave on the environment, but corporations too have. In May 2021, the electric car maker Tesla suspended vehicle purchases using Bitcoin due to climate change concerns, its CEO Elon Musk informed in a tweet. Musk had long been a supporter of cryptocurrency. After his tweet, Bitcoin fell by more than 10%.

However, the good news is the industry has woken up early and has started taking a number of initiatives in this regard. “Crypto industry is new and within 10 years of the existence of the Bitcoin people started working towards making crypto more sustainable and environmentally friendly. If we compare it with the other industries that have been in the business for a quite long time, they are yet to come up with fully eco-friendly alternatives. Take for instance the auto industry. Internal Combustion (IC) engines, responsible for high carbon emissions have existed since the 19th century but even today, the auto industry is yet to offer an environmentally friendly alternative that is scalable and accessible to the masses,” Sumit Gosh, CEO, Chingari App.

In 2021, Crypto Climate Accord, a private sector initiative to decarbonize the cryptocurrency sector by making it easier for blockchain projects to purchase offsets, was launched. So far more than 200 companies, blockchains, and individuals associated with the crypto, DeFi, energy, and technology sectors have signed up as its supporters. Here are some other initiatives.

‘Proof of Stake’ system

While the energy system that underlies Bitcoin is known as “proof of work”, some in the industry are pushing to build new cryptocurrencies on a different system called “proof of stake,”. The second-largest crypto, Ethereum, is transitioning from a proof-of-work (PoW) model to a proof-of-stake (PoS) system, creating Ethereum 2.0.

Read also: Will Ethereum Merge Emerge Victorius?

Under the “proof of stake” mechanism, anyone who owns any amount of cryptocurrency can put up their tokens as collateral towards the development of blockchain. In return, the user is rewarded a fixed percentage of the pledged assets as rewards when a new block is added to the blockchain. This process is called the ‘staking’ of crypto assets. The energy consumption of proof-of-stake is negligible compared to “proof-of-work”. It uses as little as 0.01 percent of the energy consumed in the mining process. Also proof of stake algorithms can be operated from a laptop while the proof of work protocol requires specialised computing equipment.

Then there are hybrid consensus models like Solana that integrate proof-of-history and proof-of-stake, allowing the network to handle up to 50,000 transactions per second (tps), whereas it takes several minutes to validate a single Bitcoin transaction. Furthermore, the average cost per transaction on Solana is $0.00025, implying that it has enormous scaling potential.

Other cryptocurrency projects such as Solarcoin, Power Ledger have already begun to use energy-efficient consensus algorithms such as proof of history (Solana), proof of elapsed time, proof of burn, and proof of capacity.

Mining via renewable energy

It is quite known that there is an infinite supply of Bitcoin that can be mined with the way digital currency is structured. And as miners quickly approach that upper limit the energy requirements for mining each token is only going to increase. So, a number of companies have started making moves towards renewables like hydropower, wind and solar energy. These include names like London-based Argo, Canadian firm Hive Blockchain and US-based companies like Bit Digital and BlockFusion. Then there is Houston-based tech company Lancium that raised $150 million to build Bitcoin mines across Texas that will run on renewable energy.

Co-founder and former CEO of Twitter, Jack Dorsey also took note of this growing problem posed by crypto mining. On June 5 last year, Dorsey announced a new $5 million investment in Bitcoin mining using renewables for his American financial services company. Same week, El Salvador’s President Nayib Bukele instructed state-owned geothermal companies to mine Bitcoin using 100% clean, renewable and zero-emissions energy from geothermal sources. Recently, Uzbekistan legalised cryptocurrency mining by employer solar energy. Moreover, it exempted all crypto operations by domestic- and foreign companies from Income tax.

So, what percentage of mining comes from clean energy? According to the Bitcoin Mining Council, a voluntary global forum of Bitcoin mining companies, established by Michael Saylor, the chief executive of the software company MicroStrategy, pegs the figure at 59.5%. However, the conclusion of a new research paper on the electricity mix and carbon footprint of the Bitcoin network (titled Revisiting Bitcoin’s carbon footprint), published in the Elsevier journal Joule on February 25, 2022 finds that the share of renewables that power the network decreasing to 25.1% in August 2021 from 41.6% in 2020.

While renewables like wind and solar power help reduce the cost of mining, they are not without limitations as they are an intermittent source of energy. Bitcoin miners have a constant energy requirement. In case of wind energy, the electricity production fluctuates with the weather. An oversupply can cause grid congestion, and even result in blackouts. Other renewable sources like solar energy also pose problems with their inability to generate consistent and sufficient power for full-day trading without interruptions of shutdowns. Bitcoin ASIC miner, once turned on, will not be switched off until it either breaks down or becomes unable to mine Bitcoin at a profit. Because of this, Bitcoin miners increase the base load demand on a grid.

New crypto chip

In April this year, Intel, one of the largest chip makers in the world, announced a new chipset Blockscale ASIC (application-specific integrated circuit), to improve efficiency of crypto mining done through proof of work mechanism.. It promises Bitcoin miners to get the same amount of Bitcoin for less energy. However, against the norm in the industry, Intel will be providing its clients with only the chip rather than the completed ASIC mining system. Further, the company claims that it will be able to supply these chips in volume without compromising the supply of new CPUs or GPUs. Companies like Argo Blockchain, Hive and Block Inc have signed up to purchase the chip.

US the new mining hub

After China banned cryptocurrency in September 2021, the Bitcoin mining map shifted significantly. The US quickly became the global leader for Bitcoin mining and the number one ranking country with regards to the hashrate. This was owing to a number of reasons like presence of renewable energy sources, low energy prices and pro-cryptocurrency policies. Texas ticks all the boxes and has a lot to offer the miners. The state boasts some of the cheapest sources of energy on the planet – a major incentive to miners who compete in a low-margin industry, where their only variable cost is typically energy. The state is also home to crypto-progressive and business-friendly politicians. West Texas is a mecca of renewable energy in the United States.

India remains a laggard

Despite the fact that India is home to vast natural resources like solar power (It is the fourth-largest solar power producer in the world, with more than a third of its total energy capacity produced from renewable sources), it is still a laggard in crypto mining.

The Indian government and central bank have so far had a love-hate relationship with cryptocurrencies. In the past, they openly criticized the asset class—and even temporarily halted banks from facilitating such transactions—they have also hinted at launching their own digital coin. In 2017, it imposed a ban on the import of ASCI machines specifically designed for crypto mining, forcing Bengaluru-based blockchain technology company AB Nexus to quit mining Bitcoin and Ethereum.

States like Rajasthan, Karnataka, Telangana, Tamil Nadu and Andhra Pradesh, which figure in top five states in terms of solar power production, make for ideal candidates for crypto mining. But India is letting this potential go to waste.

Says Raj Kapoor, founder, India Blockchain Alliance, “Concerns regarding high energy consumption in mining can be tackled by tapping into vast natural resources. But India has missed the bus and is losing out on huge revenue generation opportunities by not regulating mining. (When a person mines a crypto, he gets a reward which is treated as income and gets taxed. There are thousands and thousands of transactions happening worldwide. If a fraction of that mining takes place in India, the income comes to the country. Not only will it become part of our GDP and taxation, but will also encourage jobs. So, in a way the entire ecosystem will get impacted).”