Graham Friedman here–Director of Republic Crypto. First off, I want to wish you a happy Earth Day. This is the 52nd year this important holiday has been celebrated across the globe… and this year’s theme, “Invest in the Planet,” couldn’t be more timely.
Now, it goes without saying that as a member of the Republic community, a focus on investing is guaranteed to pique my interest (especially investing in projects working to solve the world’s biggest problems–climate change included).
But as a crypto evangelist, I’m especially excited to dig into one of the most common concerns I hear about crypto: its environmental impact. For years now, critics have argued that the cryptocurrency industry is a scourge to the environment, mainly due to the high volume of electricity used by mining systems.
To those people, I say: it’s time to take a closer look. Yes, huge Bitcoin mining operations require lots of power… but if you look at the crypto industry as a whole, you’ll see a very different picture. For the most part, crypto is actually a force for good when it comes to sustainability, as it reinforces economic alignment to cheaper energy sources (i.e., renewables). I’ll explain what I mean by that in this article–but first, let’s examine crypto’s (unfairly) bad rep and how that myth made it to the mainstream.
Let’s set the record straight…
Crypto is not inherently bad for the planet
A few years ago, new data from the Cambridge Bitcoin Electricity Consumption Index emerged with one shocking takeaway: in 2019, Bitcoin mining used the same amount of electricity as some small countries (think Sweden or Finland).
While this is technically true–Bitcoin as an industry uses roughly half a percent of global energy production each year–there are several reasons this stat is not the smoking gun most people think it is.
First of all, it’s important to note that using energy is not the same thing as having high carbon emissions. That’s why massive industries that use tons of power can still be carbon-neutral, depending on their practices.
It’s remarkably tough to nail down the exact level of emissions created by Bitcoin mining each year, but consider this: Any time energy is transported to its end users, some of it is lost along the way.
To tap into those alternative energy sources, we’re seeing a new trend emerge: modular Bitcoin mining rigs built into shipping containers. These ultra-streamlined units can be sent to remote locations with large natural energy sources, which are often unused or underutilized due to their distance from end users. These onsite mining rigs eliminate that problem.
By using such a broad mix of energy sources, Bitcoin mining actually does a pretty decent job of reducing carbon emissions. In their 2020 study, the CCAF estimated that about 39% of Bitcoin’s total energy consumption was carbon-neutral. (That’s about 2X better than the United States’ overall consumption.)
I believe that number will continue to increase over the next few years–and to understand why, you need to look at the way Bitcoin is designed at its core.
Bitcoin is built to be hyper-competitive
A few years ago, you could make decent money mining Bitcoin in your own home with a relatively modest setup. It’s much harder now (hence the shipping container rigs). We don’t need to get too technical here, but essentially, the math problems mining machines need to solve become more complex over time (and will continue to do so).
This framework is called “proof of work.” It basically means that in order to create and sustain Bitcoin, you need to prove that your machines are doing a great deal of complicated computing. As that landscape becomes more competitive, proof of work will always require more energy to use.
That poses an obvious problem for Bitcoin miners: fossil fuels are expensive. Renewables, like solar, wind, and hydro, are much cheaper–and their costs are falling across the board each year. Thus, Bitcoin actually has an incredibly clear incentive to move towards greener energy. Long tail, I would say that Bitcoin will actually be a driver for the financialization of greentech. The green stuff is the cheap stuff.
Plus, Bitcoin is just one of the thousands of cryptocurrencies out there today–and it’s the only one that really needs to use the proof of work mechanism. There’s a better way emerging, and it’s about to get a huge boost.
Proof of stake: a better way forward
Unlike proof of work, a proof of stake system doesn’t reward users for using more computational power. Rather, proof of stake requires participants to “stake” a portion of their own crypto (almost like collateral) to earn a chance to contribute to the blockchain and earn a reward.
From a sustainability perspective, the benefits are clear–proof of stake isn’t a contest to build the biggest mining rig or chew up the most energy crunching numbers. Researchers estimate that proof of stake systems use 99.99% less energy than proof of work. It’s also a better way to reward high-quality contributors and cull bad actors.
Ethereum, the second-largest blockchain after Bitcoin, has been working towards making the switch from proof of work to proof of stake since its inception in 2015. That change is expected to finally happen by the end of Q2 this year–and it’s the talk of the town in the industry.
Nearly every other crypto is following suit, except Bitcoin–and if you ask me, that’s the way it should be. Bitcoin is really the only blockchain that needs to stay on proof of work. There are many reasons for this, but simply put, Bitcoin is just too large and established to switch over now; doing so would throw the whole system into chaos.
That’s not the case for the roughly 18,000 other cryptocurrencies in circulation. My “hot take” is that every single one should move to proof of stake, or another novel, green consensus mechanism, if they haven’t already. I see a future where Bitcoin mining (and, frankly, the rest of the world) has moved to renewable energy sources; the rest of the blockchains use proof of stake protocols; and the world’s toughest problems, like climate change, are solved by cutting-edge crypto projects that can help offset carbon emissions, reforest the planet, and optimize the global energy supply.
Republic is building that future
We’re incredibly lucky here to be working with many crypto projects pursuing that same vision. To celebrate Earth Day, we’re going live in just a few hours with an exciting forum alongside representatives from six of the industry’s leading projects tackling climate change.
It’s all happening at 1:00pm ET. Just click here to sign up.
We’re also working on a special new podcast episode featuring the founder of Nori, a blockchain-based marketplace that aims to reverse climate change by actively removing CO2 from the atmosphere. In other words, they’re actually fixing some of the damage already done, rather than just reducing future pollution.
It’s a radical (and critical) mission that exemplifies that future vision I was talking about. Not only does it take climate change mitigation to the next level… it’s also incredibly transparent. Any time Nori removes carbon from the atmosphere, that claim is verified by third-party auditors, and their registry is posted in plain sight.
We’ll let you know when that episode goes live–you won’t want to miss it.
Let me know in the comments below if you want to hear about the other exciting crypto projects I’ve worked with in this space. If I see enough interest, I’ll come back with a “part two.” (Believe me–I could talk about these projects all day.)
That’s all for now. Happy Earth Day!
Graham Friedman | Director @ Republic Crypto
Graham’s experience in the crypto industry began when he co-founded the fund TLDR Global. He moved to Republic to help build and grow Republic Crypto. Graham also participates in the investment DAO, MetaCartel Ventures.