Amid a rise in demand for cryptocurrencies, especially in emerging markets, and an increased appetite for sustainable finance globally, efforts are under way to develop a so-called “green Bitcoin” – that is, an ecologically sustainable cryptocurrency, writes OXFORD BUSINESS GROUP.
Last year proved to be a boom year for cryptocurrencies, with the pandemic forcing many people to make payments online, thus moving them away from physical cash.
Indeed, as OBG has detailed, cryptocurrencies have experienced significant growth in emerging markets. According to statistics firm Statista, Nigeria was the leading country for Bitcoin and cryptocurrency adoption last year, and the firm associated much of this spike in demand with remittances, as in many cases people saw alternative currency trading as an effective way to circumvent perceived overvaluations of exchange rates.
This increased interest has naturally had an effect on value. For example, the price of Bitcoin, the most popular cryptocurrency, rose by 490 per cent between October last year and mid-April, when it reached an all-time high of more than US$63,000.
However, in a sign of its volatility, since this high-water mark the value of Bitcoin has halved, and stood at US$34,365 on June 29. Nevertheless, current prices are still three times as high as they were pre-boom.
There has also been a growing acceptance of Bitcoin as a legitimate method of payment.
In early June, El Salvador became the first country in the world to adopt Bitcoin as legal tender, while there are also similar proposals under consideration in Paraguay.
While many see this as an exciting opportunity, the increase in uptake has also raised concerns about the environmental footprint of cryptocurrencies.
Estimates vary on the energy consumption associated with Bitcoin mining – the process of creating new Bitcoin by solving complex computational puzzles through a “proof-of-work” principle – but the Cambridge Bitcoin Electricity Consumption Index, a tool created by researchers at the UK’s University of Cambridge, calculated the annual total at 121.36 TWh, which is more than is consumed in the whole of Argentina each year.
Developing a green Bitcoin
These environmental concerns, which have coincided with a growing demand for the implementation of environmental, social and governance (ESG) principles in business, have ultimately led to efforts to create more environmentally sustainable cryptocurrencies.
In April a group of private sector bodies – led by non-profits Energy Web, the Alliance for Innovative Regulation and RMI – launched the Crypto Climate Accord (CCA), an initiative inspired by the Paris Climate Agreement which aims to decarbonise the cryptocurrency industry.
With 45 companies from the finance, tech, energy and climate sectors supporting the accord, those involved aim to ensure that 100 per cent of the energy consumption from cryptocurrencies comes from renewables by 2025.
This was followed in May by an announcement from UK crypto mining company Argo Blockchain – a CCA signatory – and Canadian firm DMG Blockchain Solutions, that the two companies were working towards launching the world’s first clean energy Bitcoin mining pool.
Labelled the “Terra Pool”, the planned initiative is a cryptocurrency mining platform powered exclusively by renewable resources.
Elsewhere, in June representatives from the Switzerland-headquartered commodity trading company Mercuria said it was working with Bitcoin producers to supply them with renewable energy sources to help curb their carbon footprint.
Chia: the future of green crypto?
One possible solution to help curb environmental impact is the cryptocurrency Chia, which was launched in February.
Rather than Bitcoin’s proof-of-work principle, Chia is instead “farmed” via a method known as “proof-of-space”. In short, instead of being produced through the completion of complex mathematical puzzles, as is the case with Bitcoin, Chia is created by storing data on a large number of empty hard discs.
Proponents claim that this method is greener, more reliable and more secure than others, as it is significantly less energy-intensive than other crypto mining processes.
However, despite these recent steps towards creating more environmentally friendly cryptocurrencies, there are a number of critics who are sceptical about their purported sustainability credentials.
A major criticism relates to the hardware required to carry out crypto mining. Critics argue that even cryptocurrencies produced via renewable energy would still have a significant carbon footprint, due to the emissions generated in the manufacture of hardware such as computer processors, which are fundamental to the Bitcoin-mining process.
Such concerns also apply to supposedly less energy-intensive cryptocurrencies like Chia.
Given the need for a large number of hard discs in the farming process, there are concerns that the widespread adoption of Chia would simply result in an increase in emissions and e-waste as a result of the increased manufacture of hardware.
In an example of the complex challenges associated with creating more sustainable cryptocurrencies, industry media has reported that in some cases Chia farming had reduced the lifespan of a 512GB hard drive from a decade to around 40 days, ultimately leading to a significant increase in electronic waste that is likely to end up in landfill.
Furthermore, there have been significant side-effects of the Chia boom. In recent months countries like Vietnam have reported a shortage of hard discs and graphics cards, thought to be linked to Chia farming, while Chinese media have reported that between Chia’s launch in February and mid-May, the prices of 12-terrabyte drives had gone up by 59 per cent.
