Like many of my colleagues who invest in cryptocurrencies, I believe our industry can play a major role in reducing climate change.
It is frustrating to see headlines like "Bitcoin is an Environmental Disaster" or news articles glossing over the complexity of this emerging technology.
Before we can agree on basic facts and make business and political decisions that will affect the future of our economy and the future of our planet, it is important to first agree on these basic facts.
Bitcoin isn't the only cryptographic application
The best known and most popular cryptographic protocol is Bitcoin. It is often used to refer to the entire crypto-economic industry. Blockchain technology, which allows two parties to verify transactions without the assistance of a third party, is just one of the many cryptographic networks and protocols that make this possible.
For example, the Ethereum blockchain has made it possible to create hundreds of new investment and loan apps such as Compound, and has also spawned Orbit which allows individuals and businesses to sell and buy solar power. Invest in bitcoin or other cryptocurrencies has advantages.
Some crypto applications don't require electricity or mining
Bitcoin works on a proof of work consensus mechanism. This requires several powerful computers (also known as bitcoin miners) available 24 hours a day. The possibility of high energy costs is a concern that many people are aware of. A crucial part of the story is missing.
A new generation of apps uses a proof-of-stake consensus method. Proof of participation does not require energy-intensive mining. It relies on users entering their crypto assets (and possibly losing them) to secure transactions on the blockchain.
Ethereum 2.0, which is the second largest blockchain network after Bitcoin, will move from proof-of-work to proof of stake. This means that Bitcoin and its variants, like a litigation, will be the last blockchain level to have a proof-of-work consensus mechanism.
Bitcoin is an official currency in El Salvador
Yes, bitcoin mining consumes a lot of electricity. The Cambridge Bitcoin Electricity Consumption Index shows that bitcoin mining around the world consumes around 105 terawatt hours of electricity each year.
This is comparable to the total consumption of Finland. Even that amount is only a fraction of what it takes to make traditional banking infrastructure work around the world.
The 2021 Galaxy Digital report found that bitcoin uses less energy than gold or the banking industries. More importantly, measuring electricity consumption is not the same as measuring carbon emissions.
There is no way to determine exactly what kind of electricity bitcoin miners consume. Was it from coal-fired power plants, clean energy like hydroelectric dams, or a combination of both?
A 2019 report from CoinShares Research shows that the energy consumption of 73% of bitcoin is carbon neutral. This is largely due to the abundance of hydroelectricity in major mining centers such as Scandinavia and southwestern China.
The Cambridge Bitcoin Electricity Consumption Index shows that bitcoin mining is powered by renewable sources in a range of 20 to 70%. The Cambridge researchers concluded that Bitcoin's current environmental impact is minimal.