The environmental impact of blockchain and how it can be used for carbon removal

Climate change has become a significant issue over the years due to concerns about environmental changes caused by the emission of greenhouse gases into the atmosphere. Conversations have even reached the crypto space, and blockchain technology is seen as a potential tool to reduce carbon emissions.

Cryptocurrencies such as Bitcoin (BTC) and Ether (ETH) that use the Proof of Work (PoW) mining algorithm have come under scrutiny due to their alleged energy expenditure. To see where this review comes from, one must first know how much energy is used when mining PoW cryptocurrencies.

Unfortunately, estimating the amount of energy needed to mine Bitcoin and other PoW cryptocurrencies cannot be calculated directly. Instead, it can be estimated by looking at the network hash rate and power consumption of expensive graphics card mining setups.

Initially, Bitcoin could be mined with a basic computer, but as the network matured, the mining difficulty increased, forcing nodes to use more computing power to mine a new block. Due to increasing power requirements, mining Bitcoin today would require multiple graphics cards as well as cooling systems to keep them from overheating. This is what has led to the high power consumption of PoW networks like Bitcoin and Ethereum.

According to the New York Times, the Bitcoin network uses about 91 terawatt hours (91 TWh) of electricity per year, which is more energy than countries like Finland. Other sources put the figure at 150 TWh per year, more energy than Argentina, a nation of 45 million people.

However, as mentioned earlier, calculating the energy consumption of Bitcoin is not a simple task, and there have been disagreements about the actual energy consumption of the Bitcoin network. For example, Digiconomist claimed that Bitcoin uses 0.82% of the world’s power (204 TWh) while Ethereum uses 0.34% (85 TWh). Ethereum developer Josh Stark disputed the accuracy of these claims and pointed to Digiconomist’s tendencies to place estimates on the high end while pointing to University of Cambridge data which estimated that actual consumption of Bitcoin was 39% lower (125 TWh).

Additional sources agreed that Bitcoin’s energy spending was at the lower level. The Cambridge Bitcoin Electricity Consumption Index estimates that the Bitcoin network uses 92 TWh of energy per year. A research report by Michel Khazzaka also claims that traditional banking systems use 56 times more energy than Bitcoin.

RA Wilson, CTO of 1GCX – a global digital asset and carbon credit exchange – told Cointelegraph: “To say Bitcoin is ‘bad’ for the environment leaves a number of important nuances and conversations unexplored. . It is true that Bitcoin and other proof-of-work chains consume greater amounts of energy than blockchains that operate on a proof-of-stake consensus mechanism. However, there are a number of other considerations to take into account when analyzing and understanding the power consumption of Bitcoin and blockchain in general.

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“For example, the sheer amount of energy consumed does not directly correlate to environmental impact. It is also important to understand where this energy comes from. Currently, Bitcoin miners use around 55-65% renewable energy, which is impressive for such a relatively young industry. By comparison, the sustainable energy mix in the United States is only 30%. Bitcoin can therefore continue to encourage the increase in renewable energy sources within the crypto mining industry and in the United States more broadly.

There may not be a clear consensus on the environmental impact of cryptocurrency mining on PoW networks. Still, there has been a push towards using blockchain to become more energy efficient and improve the environment. As a result, sustainable energy sources for Bitcoin mining have also increased by almost 60% this year. Blockchain is also used to help remove carbon dioxide and other greenhouse gases from the atmosphere. In some areas, blockchain technology is being used alongside carbon credits in an attempt to improve the atmosphere.

What are carbon credits?

It’s common to see the terms “carbon offset” and “carbon credit” used interchangeably, but they have different meanings. A carbon offset refers to an action that aims to offset the emission of greenhouse gases into the atmosphere. Examples of carbon offsets include planting trees, reforestation, and using renewable energy sources instead of fossil fuels.

A carbon credit allows an organization to produce a certain amount of greenhouse gases depending on the number of credits it has. A carbon credit represents one tonne of carbon dioxide or other greenhouse gases. Organizations receive a fixed amount of credits, which means they can only produce a limited amount of greenhouse gas emissions.

Entities that produce emissions above the limit must buy more credits, while entities that produce emissions below the limit can sell the remaining credits. The program works by financially incentivizing polluting entities to produce less greenhouse gases. If their emissions stay below the limit, they can save or earn money (by selling credits), while they lose money by producing emissions above the limit.

Wilson believes blockchain technology can help the carbon offsets industry: “The carbon offsets industry has the potential to evolve into a multi-trillion dollar market over the next few years, but it currently suffers from a number of obstacles, including fraud and duplication of credits. The immutability and security of blockchain technology can help solve these challenges by ensuring that all carbon credit sales records are tracked responsibly and accurately.

“While blockchain technology alone cannot solve these problems in the marketplace, a combination of blockchain and related infrastructure services such as digital exchanges, a global ledger, and anti-money laundering /knowing your customer for purchase, creation and retirement can help to significantly improve existing bottlenecks,” he continued.

How organizations are using blockchain to reduce emissions

EarthFund is a platform where users can donate cryptocurrency, primarily Tether (USDT), to different eco-friendly causes on the platform. The platform also has a Decentralized Autonomous Organization (DAO) and houses a treasury that allows DAO members to decide how the funds are used. Small communities within the ecosystem choose the causes that are put forward for donations. Carbon capture and storage, as well as renewable technologies and conservation, are some of the areas explored when it comes to improving the environment.

Toucan is another platform that has created tokenized carbon credits, which are cryptographic tokens backed by actual carbon offset credits. Carbon offsets are represented on the string in basic carbon tons (BCT). In November 2021, Mark Cuban said he purchased $50,000 worth of carbon offsets every 10 days and placed them on chain as BCT.

Traditional organizations and governing bodies have also considered blockchain technology as a possible solution to reduce carbon emissions. Last year, for example, the United Nations Environment Program and other governing bodies came together during Middle East and North Africa Climate Week to examine the potential of blockchain in the fight against climate change.

In April 2022, Algorand announced that its blockchain was completely carbon neutral. This is achieved through its pure proof-of-stake mining algorithm, which does not involve any mining but instead relies on a process where validators are randomly selected to verify the next block.

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Organizations in the crypto space seek to improve the ecosystem through blockchain-tracked donations to carbon removal projects, tokenized carbon credits, and carbon-neutral blockchains.

Finally, Ethereum 2.0 is on the horizon, which will see the blockchain network transition from a consensus PoW algorithm to proof-of-stake, along with a few additional changes. PoS does not require mining hardware to validate blocks, which significantly reduces its power consumption. Due to less energy being used to power the grid, fewer fossil fuels will be burned, which will reduce the amount of carbon emitted into the atmosphere.

About William J. Harris

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