How crypto is going green: An overview for Earth Day 2023

By Johnny Lyu

The crypto industry, like any other, has the responsibility to tread a sustainable path. This year’s Earth Day theme of “Invest in our planet” resonates strongly with us. Building a sustainable economy is one of the goals echoed across the world this year. We recognize this is critical not only for our planet’s future, but also for the development of blockchain technology.

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Sustainability is the path to prosperity for humanity and businesses alike. While ESG (environmental, social, and governance) has been a priority in many industries for many years, the urgency became clear for blockchain and crypto space when the recent surge in crypto mining and blockchain maintenance stressed the global energy grid. 

In the past, the crypto industry has been criticized for its environmental impact due to the high energy consumption required for mining. In fact, Bitcoin mining drains so much energy that it has been equated to that of smaller countries, such as Norway, with an estimated annual energy consumption of 120 terawatt-hours. Fortunately, the industry has taken steps to address this issue. With years of effort put into developing more energy-efficient protocols, it’s now making great strides in reducing crypto’s energy burden.

PoS Ethereum: the second largest blockchain has gone drastically greener

Ethereum, the second largest cryptocurrency by market capitalization, previously operated on a proof-of-work (PoW) mechanism, which relied on the same energy-intensive process as Bitcoin and many other cryptocurrencies. The underlying principle was such that it required miners to solve complex mathematical problems to validate transactions and create new blocks of ledgers. Because members on the blockchain competed against each other to earn rewards, many miners set up “farms” of GPUs and ASICs to increase their chances of solving the problem first, greatly taxing the electrical grid. As DeFi and NFTs bloomed on Ethereum, its energy consumption also skyrocketed. 

However, Sept. 15, 2022 marked a watershed moment for Ethereum. On that day, Ethereum underwent an event called The Merge, fusing the Beacon Chain with the Ethereum Mainnet and migrating the blockchain from a proof-of-work (PoW) chain to a proof-of-stake (PoS) chain.

PoS is a consensus mechanism that does not require miners to solve calculation-intensive problems like PoW. Instead, validators are chosen based on the amount of cryptocurrency they hold, aka their stake, and they are responsible for validating transactions and creating new blocks.

Such a consensus mechanism makes the new PoS Ethereum much more energy-efficient than the legacy PoW Ethereum. According to ethereum.org, After the Merge, PoS Ethereum reduced 99.5% of annualized energy consumption, from 78TWh to only 0.0026 TWh. For a clearer comparison, the annualized energy consumption of gold mining, PayPal and YouTube is 240TWh (92,000x), 0.26TWh (100x) and 244TWh (94,000x) respectively.

Digiconomist also reported that the carbon footprint of PoS Ethereum has also been lowered to 0.02 kgCO2, equivalent to that of 44 credit card transactions. In addition to increasing the scalability of the Ethereum ecosystem, the Merge has also made it a more environmentally friendly cryptocurrency.

Other greener consensus protocols

Here are some interesting facts. Varieties of PoS protocols account for up to 60% of all active blockchains. There are nearly 20 other consensus protocols out there that do not require a significant amount of energy. And out of all consensus protocols, PoW is the only energy-intensive one.

In parallel with PoS, other consensus protocols are also under active development to make the crypto industry more sustainable. For instance, Hedera utilizes the Asynchronous Byzantine Fault Tolerance (aBFT) hashgraph consensus algorithm that doesn’t require mining, meaning that it consumes less energy than other blockchains. It also supports smart contracts, which makes it a viable option for decentralized applications. Another example is Solana, a blockchain that uses a consensus protocol called proof-of-history (PoH), which also reduces energy consumption by reducing the number of confirmations required for transactions.

Other blockchain platforms, like Tezos and Algorand, also explore greener alternatives. For example, Tezos uses a consensus algorithm called Liquid Proof-of-Stake (LPoS) that allows token holders to delegate their stake to a validator, which then confirms transactions on the blockchain. This approach eliminates the need for miners to compete for rewards, reducing energy consumption in turn.

And this is just the beginning. As the industry forges ahead, we can expect more innovations and initiatives to emerge in the coming years.

Blockchains that practice decarbonization

No matter how energy-efficient a blockchain is, energy consumption and carbon emission are inevitable. On that end, several blockchains have implemented carbon-neutral strategies to mitigate the environmental impact created by sustaining their operations.

One of the examples is Solana. In addition to developing its PoH protocol that is faster and less energy-consuming than traditional consensus protocols, the Solana Foundation also began tracking the carbon footprint of the Solana blockchain and publishing reports of their energy use in 2021. The network is also carbon-neutral for the platform offsetting its carbon footprint by purchasing carbon credits.

Algorand strives to be not only the greenest high-performance blockchain, but also a carbon-negative one. They partner with ClimateTrade, a verifiable carbon credits marketplace running on the Algorand blockchain to launch the first smart contract to offset carbon emissions by automatically allocating a portion of every transaction fee to offset its carbon emissions.

The next Bitcoin halving could drive renewable energy adoption

Bitcoin halvings, which occur every 210,000 blocks or about every four years, could serve as another driver for its miners’ adoption of renewable energy. These events involve a 50% reduction in Bitcoin block rewards, thereby reducing miners’ earnings by a similar amount unless the Bitcoin price rises. The next halving is expected in 2024 and will decrease block rewards from 6.25 BTC to 3.125 BTC per block.

Lower rewards mean cooler incentives for miners. When the block reward halves, miners must either find ways to reduce their costs to maintain profitability or risk being priced out of the market. As competition and halvings pressure miners to improve their efficiency, they search for sustainable and cost-effective practices as keys to their future success.

Renewable energy, like solar energy and hydropower, is an attractive option for Bitcoin miners because it provides a reliable source of power that is not subject to the same price volatility as traditional energy sources. It can also be more cost-effective over the long term, as the cost of solar panels and wind turbines continues to fall.

In recent years, we have seen a growing trend of Bitcoin miners setting up shops in regions with abundant renewable energy resources, such as hydroelectric dams in China and geothermal power plants in Iceland. This trend is expected to continue as halvings and competition drive miners to seek out more efficient and sustainable practices.

The crypto industry is responding to the nature’s cry

From my vantage point, I’m proud to say that the industry is responding to this call and making significant progress toward sustainability.

We’ve seen how crypto mining, once criticized for its energy consumption, is now powered by renewable energy sources like hydroelectric and solar power. We’ve also witnessed the successful migration of Ethereum from PoW to PoS, reducing its carbon footprint and energy consumption. And we’ve seen the emergence of other greener consensus protocols and carbon-neutral practices helping blockchain become more sustainable.

The crypto industry is still relatively new and has its fair share of challenges, but we’re committed to making it a force for good. By investing in green technologies, adopting sustainable practices, and prioritizing ESG standards, we can ensure that crypto plays a positive role in building a healthy economy and protecting our planet.

The author is CEO, KuCoin

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