Sceptics are right to call out crypto’s carbon footprint, not to dismiss the technology out of hand. Ivan Liljeqvist, Co-Founder & CEO of Moralis, explains how the shift to “proof-of-stake” will see crypto contribute to a more sustainable future.  

With cryptocurrencies, it seems as though most people fall into one of two camps: enthusiasts or sceptics. Talk to an enthusiast and they will tell you that cryptocurrencies are the future, and we are all standing at the starting line of a major financial revolution. If you speak to the sceptics, of which there are many in the mainstream media, they will point to a risky and speculative market they believe is steeped in danger and volatility.

Whichever side of the fence you are on, we should all be able to agree that cryptocurrencies consume a significant amount of energy and that consumption takes a toll on the environment. But just how heavy is crypto's carbon footprint? Well, current estimates suggest that the carbon footprint of Bitcoin, the world's largest cryptocurrency, is equivalent to that of New Zealand.

It is hard to downplay how big an issue this is because the act of mining itself fluctuates with the price of Bitcoin. When the currency climbs to new highs, more and more miners join the process, increasing the power consumption. While there is a natural ebb and flow alongside the currency price, the number of regular miners is growing, with fewer drop-outs, and wider power usage is only likely to increase as mainstream crypto adoption rates rise.

As governments around the world race to reverse the damage already done and reach net-zero emissions, the crypto boom presents something of a challenge to those tasked with tackling climate change.

“We should all be able to agree that cryptocurrencies consume a significant amount of energy and that consumption takes a toll on the environment.”

Mining and validating transactions

To tackle the issue we first need to illustrate and understand its severity. Two of the most commonplace and energy-intensive crypto actions include mining and validating transactions. Mining a single Bitcoin block can consume more than 2,000 kilowatt-hours of electricity — the same amount of power required to run the average American home for 72 days. Meanwhile, a single Ethereum transaction, although not as power-thirsty as Bitcoin, still consumes the same amount of electricity as the average American household does in one week.

When you consider that mining and validating transactions take place all over the world, with thousands of computers crunching numbers regularly and daily, the size of the problem quickly becomes apparent. Several studies have already shown that bitcoin mining alone uses more electricity globally per year than some small countries.

So, what can we in the industry change? What can we do to make sure crypto becomes cleaner, greener and more sustainable?

“Mining a single Bitcoin block can consume more than 2,000 kilowatt-hours of electricity — the same amount of power required to run the average American home for 72 days.”

Proof-of-work vs. proof-of-stake

In April of last year, the industry came out announced its own set of green actions: The Crypto Climate Accord. The goal of the accord is to transition the industry towards renewable energy sources by 2025. By 2040, crypto’s goal is to be completely clean, with the entire industry at net-zero emissions.

One way in which the industry is hoping to clean up its act and meet its targets is by confronting the current “proof-of-work” status quo.

The proof-of-work system involves individuals or separate groups of people verifying the records and transactions stored in a blockchain. The aim is to make sure that the ledger remains up-to-date. As the system is governed by its code rather than a central authority, anyone is free to partake in the process, the reward for which is bitcoin, but the work requires a lot of computational power.

In contrast, the proof-of-stake approach to security is much more traditional: trust through money. This mechanism, which is called “staking,” approves a validator upon receipt of a specific stake. On Ethereum’s blockchain, the stake is 32ETH. Users don’t need high-performance rigs and masses of computational power with proof-of-stake, they are selected at random based on the percentage of their stake and, when not selected, can validate proposed blocks, which is referred to as “attesting.”

This consensus mechanism is the digital equivalent of an escrow account or security bond. A user’s stake is there to ensure good behaviour and punish misuse. And because blocks are no longer mined, which is what uses the bulk of computing and electrical power, it becomes much more energy efficient.

“By 2040, crypto’s goal is to be completely clean, with the entire industry at net-zero emissions.”

Cleaner, greener crypto

The proof-of-stake mechanism is one that I both support and believe offers the best opportunity we have to get a grip on the industry’s increasing power usage. By moving to proof-of-stake to validate transactions and mint new coins, we can begin to reduce crypto's carbon footprint because it simply doesn’t require the same computational power to perform as proof-of-work.

For all the criticism crypto receives regarding its carbon footprint, I do believe the industry has done a good job in holding itself to account. Ethereum is already backing the switch to proof-of-stake, which represents a significant step-change, and the Crypto Climate Accords set out clear targets and provide a timeline to achieve results. As the second-largest blockchain, Ethereum’s switch to proof-of-stake, which will happen this year, promises to reduce energy consumption per transaction by more than 99 per cent. That represents a massive commitment.

“By moving to proof-of-stake to validate transactions and mint new coins, we can begin to reduce crypto's carbon footprint because it simply doesn’t require the same computational power to perform as proof-of-work.”

In the long term, I don’t think that environmental issues are an existential crisis for the crypto industry. I think we will definitely see greater regulation in Europe, with policymakers putting pressure on the industry to make clean and sustainable changes, and I think they will push for a change to the consensus mechanism in favour of proof-of-stake. Here in Sweden, where bitcoin mining has been declared a national issue, there have already been calls to ban proof-of-work. It is a call I expect governments throughout the EU to echo.

As the industry attempts to move closer to a greener, cleaner and more sustainable future I believe we will see many of the standards surrounding carbon neutrality and net-zero emissions become the de facto norm in crypto. But the big push has to be first switching the consensus mechanism because if we can do that, I think we can get the energy output under control and tackle the issue of crypto’s carbon footprint and negative environmental impact ourselves.


Ivan Liljeqvist, Co-Founder & CEO of Moralis

Ivan Liljeqvist is the co-founder and CEO of Moralis. Ivan is an international speaker, educator, developer and data scientist. He established one of the world’s leading YouTube channels on blockchain and cryptocurrencies, Ivan on Tech, which has amassed a following of over 450,000 subscribers. In 2021, Ivan and Filip co-founded Moralis after building a tool that would allow developers to create decentralised applications (dApps) without any specific programming knowledge of Web3. He holds a degree in Computer Science Engineering from the KTH Royal Institute of Technology.

Follow Ivan on Twitter, connect on LinkedIn and email Conviction News with anything else.

Thoughts?

Subscribe for free and leave a like and comment below.

Join the conversation

Great! You’ve successfully signed up.
Welcome back! You've successfully signed in.
You've successfully subscribed to Conviction News.
Your link has expired.
Success! Check your email for magic link to sign-in.
Success! Your billing info has been updated.
Your billing was not updated.