A greener consensus mechanism
Some cryptocurrencies have been shifting to a less-energy intensive ‘proof of stake’ system to validate cryptocurrency transactions. Holders of the cryptocurrency are allocated coins to validate based on the amount of cryptocurrency they own, meaning that if someone were to hold 1% of the whole supply, they would be contributing to process 1% of all the transactions made on the network. Validators put up coins for collateral and receive crypto rewards for their efforts. To prevent fraud, they face penalties if they fail to correctly validate the blockchain. Proof of stake is much more eco-friendly and multiple competitors of Bitcoin, like Cardano, Polkadot, Solano and Ethereum have been trying to shift to this model.
A greener power source
Another solution is for the entire industry to detach itself from fossil fuels by harnessing energy from renewable sources. Estimates vary widely, but a 2018 report from the University of Cambridge found the average share of bitcoin mining facilities using renewables was 28%. Hydro power has been attracting much attention (and capital). The Chinese provinces of Sichuan and Yunnan are both intensive hydroelectricity generators. It is no coincidence that these regions were, before the ban, among the go-to places for bitcoin mining, thanks to low power costs. Сowa.ai, the largest European Bitcoin mining company, runs completely on renewable hydro energy, thereby reducing the carbon footprint of the ‘proof of work’ system to zero. Another way to lessen the carbon footprint associated with mining is to leverage resources that would go otherwise unused or wasted, or that are stranded in remote locations. Companies such as bitcoin miners Great American Mining and Compass Mining have found ways to harness neglected energy sources to power their operations (though critics argue this acts as a subsidy for the fossil fuel industry and incentivizes extraction).
Conceived in 2021, the Crypto Climate Accord, based on the Paris Climate Agreement, is a private-sector led initiative that focuses on decarbonizing the crypto and blockchain industry to achieve net-zero emissions by 2030. More than 200 companies and individuals have signed up to date and are working collaboratively to accelerate the development of digital green solutions and to set a new standard for other industries to follow.
With a less energy-intensive, fossil-based mining mechanism, bitcoin and the related blockchain, often labelled as ‘dirty’, could become a cleaner asset, and could validly be used as a tool to address some of the ESG needs of the future.