The Need to and Methods of Decarbonizing Blockchain
As things stand today, we are headed for a nasty collision. The increasing use of blockchain technologies is in direct conflict with our collective need to make the global economy more sustainable.
The following is a high-level commentary on blockchain’s environmental impact and how the technology could be decarbonized to fit into the sustainability paradigm of contemporary and future economics.
With all the problems directly and indirectly caused by consistently rising global temperatures, there has been a groundswell of support from individuals and businesses to combat climate change. Moving forward, businesses, governments, and individuals will build the global economy on green principles. They have to; otherwise, it may not exist.
Just as sustainability has become embedded in our political and business agendas, we have also been exposed to new, more efficient, more equitable, decentralized frameworks via blockchain. Since Satoshi Nakamoto first deployed Bitcoin in 2009, more and more individuals and businesses have realized the financial, operational, and societal advantages of building decentralized networks, companies, and infrastructure. Bolstered by the massive amount of wealth Bitcoin has generated, the technology will be a core component of the future global economy.
However, many people argue that the two are entirely incompatible given the excessive energy the latter consumes.
How much energy are we talk about?
A lot.
Let’s take a look at Bitcoin energy consumption.
Researchers at Cambridge University estimated that mining Bitcoin uses more electricity than Argentina, Sweden, or Pakistan’s respective economies consume.
Alex de Vries, a prominent voice in the monitoring of Bitcoin energy consumption, broke down the currency’s energy use:
Annualized Total Bitcoin Footprints
Carbon Footprint
- 47.33 Mt CO2
- Comparable to the carbon footprint of Norway.
Electrical Energy
- 99.63 TWh
- Comparable to the power consumption of Kazakhstan.
Electronic Waste
- 11.19 kt
- Comparable to the e-waste generation of Luxembourg.
Single Bitcoin Transaction Footprints
Carbon Footprint
- 435.94 kg CO2
- Equivalent to the carbon footprint of 966,202 VISA transactions or 72,657 hours of watching YouTube.
Electrical Energy
- 917.78 kWh
- Equivalent to the power consumption of an average U.S. household over 31.46 days.
Electronic Waste
- 103.02 grams
- Equivalent to the weight of 1.58 C-size batteries or 2.24 golf balls.
Exacerbating this problem is Bitcoin’s design of a marginally more complex algorithm needing to be solved by miners.
[Mining Bitcoin] doesn’t become more energy-efficient over time, as other technologies do… It just leads to a bigger emissions impact, unless their energy is carbon-free.
Dr Susanne Köhler
However, Bitcoin is not the only culprit; other Proof-of-work blockchains such as Ethereum are big emitters.
Also tracked by Alex de Vries, Ethereum has a sizeable environmental impact, as highlighted below:
Annualized Total Ethereum Footprints
Electrical Energy
- 35.81 TWh
- Comparable to the power consumption of Bulgaria.
Carbon Footprint
- 17.01 Mt CO2
- Comparable to the carbon footprint of Croatia.
Single Ethereum Transaction Footprints
Electrical Energy
- 74.79 kWh
- Equivalent to the power consumption of an average U.S. household over 2.53 days.
Carbon Footprint
- 35.53 kgCO2
- Equivalent to the carbon footprint of 78,747 VISA transactions or 5,922 hours of watching YouTube
That’s just a huge waste of resources, even if you don’t believe that pollution and carbon dioxide are an issue. There are real consumers — real people — whose need for electricity is being displaced by this stuff.
Bad press
Recently, NFTs got a lot of attention — not all of it was good.
Artists from around the world we’re suddenly exposed to a new way of accessing buyers for their work and, in some cases, able to monetize artwork beyond the initial sale. This new system which removes the need for intermediaries, holds a variety of opportunities for this industry to access liquidity — particularly attractive post lockdown.
However, once the honeymoon was over, some artists started to investigate NFT carbon emissions.
*Queue collective gasp of horror.
It turns out my release of six crypto-artworks consumed in 10 seconds more electricity than the entire studio over the past 2 years… It felt like madness to even consider continuing that practice.
According to artist and developer Memo Akten, and supported by independent research, creating an NFT (on the Ethereum blockchain) produces over 200kg of CO2. To put that into perspective, that’s equivalent to a 500-mile road trip in an average gasoline-powered car.
But that’s just the creation of an NFT.
There is an awful lot more activity that generates carbon emissions, as Atkin highlights:
- Minting: 142 kWh, 83 KgCO2
- Bids: 41 kWh, 24 KgCO2
- Cancel Bid: 12 kWh, 7 KgCO2
- Sale: 87 kWh, 51 KgCO2
- Transfer of ownership: 52 kWh, 30 KgCO2
Focusing on certain blockchains
It’s important to note that not all mining relies on excessive energy, and it is only specific blockchains that require energy-heavy systems. Bitcoin, Ethereum, and some other cryptocurrencies use a consensus algorithm known as Proof-of-Work, a form of cryptographic zero-knowledge proof in which one party (the prover) proves to others (the verifiers) that a certain amount of computational effort has been expended for some purpose. Proof-of-Work (PoW) is designed to be computationally inefficient. Its security comes from the fact that it requires so much computation to write to the blockchain (i.e. add ‘blocks’)
State of play
Atmospheric carbon dioxide as of February 2021: 416 ppm
As widely agreed throughout the scientific community, there needs to be a universal effort to draw down atmospheric carbon levels if we’re going to avoid some mass extinction event in the future.
It follows that should blockchain energy consumption be left unchecked, efforts to combat climate change could be offset entirely. A recently published paper in the journal Nature Communications warned that crypto mining in China could effectively cancel out its decarbonization efforts.
But crypto is mined renewably, right?
Many people like to think so; Coinshares concluded that the Bitcoin network obtains 74% of its electricity from renewable sources.
Upon closer inspection, this doesn’t seem to be the case. Other studies into the energy sources of cryptocurrency point to renewables only contributing around 29%.
A flooded coal mine in Xinjiang has served as a reminder that China’s Bitcoin mining industry is still heavily reliant on coal.
It turns out, most mining facilities in Bitcoin’s network are located in regions (primarily in China) that rely heavily on coal-based power.
Coal is fueling Bitcoin.
Breaking down the discrepancy
The confusion about where the energy comes from appears to be caused by misdiagnosis; the concentration of miners in certain areas that favour coal count renewables as part of their energy source, not all of it.
According to Coinshares, one favoured area for such cheap electricity is the province of Sichuan in China. It is suggested that 48% of the global mining capacity is now situated here.
There is a notion that electricity surplus in some APAC areas, such as the province of Sichuan in China, gives hashers who relocate their operations there during the rainy season [May-Oct/Nov] a competitive advantage in minimizing their running costs. However, survey data demonstrates that this seasonal advantage appears to be offset by less affordable electricity prices throughout the rest of the year when hashers migrate back to other provinces, such as Xinjiang or Inner Mongolia in China
3rd Global Cryptoasset Benchmarking Study, p24
Coal-based mining is principally adopted in regions such as the Chinese provinces of Xinjiang and Inner Mongolia and in Kazakhstan, whereas hydroelectric energy is mainly generated in South-Western regions of China (Sichuan and Yunnan). China’s oversupply of hydroelectric energy during the rainy season has often been used as evidence in claims that a vast majority of mining is powered by environment-friendly power sources. While it is true that the Chinese government’s strategy to ensure energy self-sufficiency has led to the development of massive hydropower capacity, the same strategy has driven public investments in the construction of large-scale coal mines. Like hydroelectric power plants, these coal power plants often generate surpluses. It should not come as a surprise then that a significant share of hashers in the region equally report using both hydropower and coal energy to power their operations”.
3rd Global Cryptoasset Benchmarking Study, p27
Where to go from here?
Decarbonizing blockchain can only really happen when we admit there’s a problem.
There is an emissions problem, but it can be solved. It has to be solved.
This issue is not new to the crypto community; it’s something that has been debated since the beginning:
Ultimately, there are various ways blockchain networks could be decarbonized, which we will be exploring below.
Carbon offsets
Often used by businesses to neutralize the carbon footprint of their products and services, carbon offsets are considered a low cost and relatively simple way of counteracting any negative impact a given activity has on the environment.
Generally speaking, the system is constructed such that a variety of projects, such as reforestation/conservation, solar-powered stove distribution, and soil revitalization (mostly in developing economies), are audited by a standards body. Once a project has been verified, and carbon offset capacity is calculated, carbon offsets are issued and purchased by individuals and businesses. The sale of these offsets, in theory, directly finances the projects. The offsets themselves are measured in tonnes of carbon dioxide offset — or, at least to be offset as projects tend to be a few years long — so one offset amounts to one tonne of carbon dioxide offset.
However, while this may seem impactful, offsets are problematic for several reasons.
As pointed out by some Twitter users, offsets do not solve problems or ensure future emission sources are avoided.
Some have pointed to carbon offsets as a cause of market failure because of the moral hazard and moral licensing by-products. While created with good intentions, all they actually amount to is a way for large corporations to publically pay for their sins and lull their customers into the incorrect assumption that they have, in any way, offset their carbon emissions.
A common offset solution, tree planting, is also wholly inadequate at dealing with the problem. For example, let’s take NFTs. Given that a tree captures around 5.9kg of CO2 per year during its first ten years, it will take a tree around 12 years to offset the minting of a single NFT — not including the various other activities associated with the distribution of NFTs as mentioned earlier as well as those activities required to grow a tree (water and fertilizer).
There are also issues regarding:
- Additionality. Carbon dioxide reductions are additional if they would not have occurred in the absence of a market for offset credits. If the reductions would have happened anyway — i.e., without any prospect for project owners to sell carbon offset credits, they are not additional.[1] . Given the focus on natural carbon sink development in the voluntary offset market, the impact of offsets is questionable.
- Leakage. Defined as an unintended increase in GHG emissions caused by a project [2], the occurrence of which is difficult to account for in the voluntary offset market because of the reliance on non-technical monitoring of projects.
- Permanence. Sequestration projects need to ensure that emissions are kept out of the atmosphere for a reasonable length of time. [3]. Again, because of the lack of automated oversight of the projects in the voluntary offset market, offset issuers cannot necessarily assure permanence.
- Improper baseline calculations. Because of lack of oversight, transparency, and technological ability to measure carbon capture capacity of the projects and the footprint of their supply chains to execute them.
They’ve also been found, in some cases, to be BS. Bloomberg has started sounding the alarm on a few offset initiatives, even those undertaken by trusted organizations.
Thus, relying on or even issuing carbon offsets to decarbonize blockchain does not appear to be an effective solution.
We will be covering the offset market and its failures in upcoming articles.
Renewable energy
If all mining was powered by renewable energy, then the entire issue is resolved, the increasing energy consumption dilemma becomes a moot point.
However, the significant problems are the cost of shifting miners over to renewable energy and then dealing with intermittency problems (as highlighted in a previous article)
Let’s tackle the conversion first.
Getting Proof-of-Work blockchain miners to use renewable energy needs to make economic sense; otherwise, it’s a non-starter.
As such, let’s start with the financial case for miners to switch.
As can be gleaned from the graphic above, energy costs amount to a significant portion of a miner’s costs.
By switching to renewables, there is the potential to eliminate energy costs for miners and thereby massively increase mining profitability.
Nonetheless, renewable energy infrastructure is expensive. The cost of switching is a significant point of friction as many miners won’t have the capital to acquire it.
Addressing this problem specifically, Mantle has created a platform through which miners can access cheap capital to finance their switch over green energy.
Government funding?
While this type of financing has been advocated for by community members to address climate action, this will likely be unsuccessful in the crypto community.
Beyond the stereotypically libertarian political leaning of the cryptocurrency and wider blockchain community, mining’s decentralized nature means that miners themselves are spread across the planet. There’s no single government that would be providing the capital.
While a government could help finance the switch, the total resource cost and aggregate effort invested into lobbying and other activities to initiate this would most likely outway the capital put up by a government body.
Frankly, it also seems unlikely that any government would support such an initiative (at this point at least) given widespread hesitancy even to permit cryptocurrencies.
We will find better solutions in the private markets.
The intermittency of renewable energy
Even when the money has been raised, and the infrastructure installed, once up and running, the next problem surfaces; intermittency of power.
Renewable energy sources such as wind and solar — solutions generally favoured by advocates of green infrastructure over alternatives such as nuclear — cannot guarantee an uninterrupted, consistent electricity supply.
This could prove fatal to certain mining operations because mining only works when it constantly runs. Each time miners unlock coins by successfully verifying transactions on the blockchain, the next set of calculations automatically becomes harder to solve. The only way to get an edge over mining competitors is to run more frequently.
Every time you shut down, you lose a level of income that you never get back.
Alex de Vries
However, there are solutions to support consistent energy production, including:
- AI and machine learning to understand energy production patterns better and improve forecasting.
- Various energy storage systems integrated with renewable energy infrastructure.
Improving energy efficiency
Of course, miners aren’t going to run on renewables tomorrow.
In the interim, (some) blockchains could be made more efficient to address the energy consumption issue.
Ethereum Plans to Cut Its Absurd Energy Consumption by 99 Percent. The cryptocurrency is going on an energy diet to compete with more efficient blockchains
The plan with Ethereum is to replace energy-intensive PoW with proof of stake (PoS). With PoS, instead of millions of processors simultaneously processing the same transactions, a single one is picked randomly to do the job.
The term ‘miners’ is also replaced with ‘validators’, and each validator is required to put up a stake (a certain amount of ether) as collateral — the greater the stake, the greater the chance of a turn at processing. Cheating is also disincentivized as there is more to lose as a validator — PoS has been engineered to promote honesty.
The PoW part is the one that’s consuming these vast amounts of electricity. The blockchain transactions themselves are not super computationally intensive. It’s just verifying digital signatures. It’s not some kind of heavy 3D-matrix map or machine learning on gigabytes of data.
Vitalik Buterin
The shift to PoS will reduce energy consumed per Ethereum transaction by around 100x.
Beyond reduced energy consumption, there are several advantages PoS possesses over PoW, including financial incentives and security enhancements. It’s not as burdensome as one may first think — it’s a viable way of reducing energy consumption.
Blockchain alternatives
Regardless of what BTC maximalist may say on Twitter, there are alternatives, including:
EOS [4]
EOS.IO is a blockchain protocol based on the cryptocurrency EOS. The smart contract platform claims to eliminate transaction fees and also conduct millions of transactions per second.
EOS is the world’s first major carbon-neutral blockchain! — 66,454 times more energy-efficient than Bitcoin and 17,236 times more energy-efficient than Ethereum
Polkadot [5]
Polkadot is a heterogeneous multi-chain interchange and translation architecture that enables customized side-chains to connect with public blockchains.
Cardano [6]
Cardano is a public blockchain platform that aims to run smart contracts. It is open-source and decentralized, with consensus achieved using proof of stake. It can facilitate peer-to-peer transactions with its internal cryptocurrency Ada.
As well as lesser-known projects:
Near [7]
Inflow [8]
Solana [9]
Available [10]
Regen [11]
Indeed, these alternatives could be helpful for artists to continue the embrace of digital art without compromising their carbon footprint. The impact of this shouldn’t be underestimated or ignored — throughout history, artists have led cultural shifts in contemporary thought. There is more chance of widespread adoption by empowering the art community to embrace blockchain via digital art.
But it’s important to note that alternatives do not necessarily guarantee reduced energy consumption.
The above table displays the top 20 mineable currencies with their respective algorithms, efficiencies of suitable mining devices, and rated power of the networks.
It is important to note that currencies with ASIC-resistant algorithms consume an overproportionate amount of energy in relation to their market capitalization. As listed in Table 1, RavenCoin, for instance, accounts for 4.32% of the total rated power, whereas its market cap only accounts for 0.06% of the considered top 20. A second example is Monero, which became ASIC-resistant after an update in March 2018. The update led to an abrupt decrease in the network’s computational power of more than 80%. After a few days, the hash rate bounced back to half of the pre-update level as miners switched from ASIC to less-energy-efficient GPUs.
Also worth noting, using alternatives is not the same as switching from whole milk to oat milk.
Firstly, the brand recognition of Bitcoin and Ethereum does generate certain stickiness, and the well-documented tribalism in the blockchain community means it’s not just as easy as switching to alternatives.
Secondly, given the infrastructure, projects, and investment into specific blockchains, movement can be limited if not impossible in some instances.
Symbiosis
Rather than being a cause of friction, blockchain and sustainability can be symbiotic in the following ways:
More transparent, efficient, and equitable markets
A vital feature of the blockchain is transparency, particularly the ability to monitor transactions, query ownership, and map out economic activity. Sustainability principles are introducing the world to new business models, new technology, new infrastructure, and new assets, for example, the over-abundance of carbon dioxide in the atmosphere. Blockchain technology can provide the more suitable infrastructure upon which to build markets for this new, sustainable economy that often finds itself at odds with the incumbent, centralized systems that perpetuate harmful practices.
Of particular interest is the new ownership structures blockchain-enabled. In The Wealth of Nations, Adam Smith suggests ownership is one of the pillars of prosperous economic environments. Without well established, governed, and maintained ownership right, the market ceases to function correctly, and the invisible hand flips us the bird. One of the exciting attributes of blockchain is its ability to create new, decentralized ownership structures that empower a more significant portion of the market.
One could anticipate this having a significant impact on hitherto economically disadvantaged groups. By widening access to investment opportunities such as renewable energy infrastructure, blockchain could help deliver a more equitable economy that addresses climate injustice. Unlike the current centralized system, which excludes these groups from the financial rewards of energy generation and longer-term infrastructure investments, blockchain could go a long way to help level the playing field and empower said groups by providing them with new financial opportunities.
Microgrids
As explored in The Grid, The Fraying Wires Between Americans and Our Energy Future centralized, Gretchen Bakke PhD centralized electrical grid systems such as those used in the US are a legacy system soon replaced with more efficient microgrid infrastructure.
Not only have recent events such as the 2021 Texas power crisis [12] highlighted systemic failures with current solutions, but they have piqued interest in renewable energy and microgrids because of their ability to support communities regardless of extreme weather instances.
As demonstrated with projects such as the Brooklyn Microgrid, blockchain technology has the capacity to enhance the efficiency with which energy is distributed amongst a community.
The project is the manifestation of this symbiosis between blockchain and sustainability, and it’s more than likely we’ll start to see similar systems crop up over the next few years — especially in the wake of Texas’ issues.
Investment transparency
Blockchain also allows more corporations to be held accountable for where they choose to put their money.
Throughout the world, greater amounts of pressure continue to be placed on publically traded companies to divest their portfolios and support climate-friendly businesses, initiatives, and research. Blockchain technology can conduct these financial transactions in a transparent, low cost, and accountable manner.
By embracing the use of blockchain at a corporate level and through the investment landscape, we are more likely to accelerate toward climate goals instead of falling victim to tokenism and green-washing by large businesses that publicly profess to be green continue to support environment-damaging industries.
Conclusion
Two inevitable features of the future global economy are sustainability and blockchain. While some may argue that the two are on a collision course, I have highlighted that this can be avoided. There are multiple ways through which economically viable decarbonization of blockchain can occur.
This article looks at the significant environmental impact PoW blockchains, such as Bitcoin and dispels commonly held but misguided beliefs that this cryptocurrency is mined using renewable energy.
Once the negative environmental impact is established, we then look at the various paths that can be taken to decarbonize blockchain.
Firstly, offsetting the carbon emissions. A common way for businesses to hit neutrality goals, purchasing emissions received a lot of attention (and capital) since first introduced as part of the Kyoto Protocol. However, the practice of offsetting is problematic in its creation of moral hazard, and the efficacy of offsets has been put into question lately. Over-reliance on this could prove dangerous.
Secondly, transferring mining to renewable energy. While solving the problem, in theory, the practicality of switching miners over to renewable energy will be expensive, and intermittency will need to be solved because of its direct, negative financial impact on miners should they be faced with unstable energy sources.
Thirdly, designing more efficient algorithms. Currently being pursued by Ethereum, introducing systems that do not consume as much energy will undoubtedly go a long way to help reduce emissions and help as an interim solution as we transfer onto renewables.
Fourthly, using different blockchains altogether. Although resistance may be put up by the various tribes of blockchain, using more environmentally-friendly blockchains could help the technology’s adoption because trends such as digital art will continue. Nevertheless, an alternative may also face energy consumption issues, and the branding of Bitcoin and Ethereum may make this is sticky move.
I have also highlighted that beyond simply fitting into a positive climate framework, blockchain and sustainability can be symbiotic in their existence, especially as the former offers new ways of structuring ownership, energy distribution, and transparency.
Going forward, it is vital to continue the push toward a carbon-neutral blockchain network—organizations such as the CCA highlight this and signal widespread support from the space to decarbonize the technology.
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If you are a cryptocurrency miner and would like to transition to renewable energy, please feel free to reach out to the team at Mantle at hello@mantle.fund to go over financing options.
About Mantle
Mantle is an investment platform streamlining capital into green technology. Through Mantle, green tech startups can directly raise funds from individuals and corporations.
For more information, please visit mantle.fund or email hello@mantle.fund.
