Can Crypto Ever Become Green


Summarise with AI

AI summary

The problem

Blockchains are terrible for the planet. It’s a sad fact as it’s a promising technology but it’s true. 

There’s no point in freeing ourselves from the clutches of blue blood financial institutions if the only environment we have to enjoy our freedom in is a submerged, roasting wasteland full of screams. 

The reason that blockchains are so bad for the planet is that they require a monumentally large amount of power to run. 

Why do they need this much power? 

Mostly because a core part of blockchain technology is the fact that it is decentralised, meaning that no one person or corporation owns it and consensus on the next block in the chain (which records all transactions) is reached amongst the interested parties, rather than dictated by the head honcho at the top, as is the traditional way.

And because people truly suck, blockchain technologies need a specific way to stop a malicious actor from fudging the numbers on the next block for their own insidious gain. 

And the way originally devised? Something called proof-of-work.

I’ve written about this before, but proof-of-work essentially means that to mint the next block, you (or rather your machine) needs to complete an incredibly complex puzzle, which requires so much power that it makes it unprofitable for a malicious actor to attempt to disrupt the chain. 

This is an ingenious solution to the problem, and if we knew who invented Bitcoin, I’d give them props (my money is on Da Vinci, that guy is everywhere). The only problem is that as Bitcoin has exploded and various other projects were spun off from its open source code, the amount of energy expended in trying to solve these puzzles has exceeded the overall carbon emissions of a small country. 

Seriously, Bitcoin’s carbon footprint alone is equivalent to New Zealands. 

If Bitcoin and cryptocurrencies like it want to become the currency of the future, it’s in everyone's interests to make sure there actually is a future at all.

The solutions

Proof-of-stake and other validation methods

So if proof-of-work is the thing that makes blockchains bad for the environment, why don’t we swap this for another democratised system entirely?

Well funnily enough, a lot of people are trying to do this.

The prevailing and most promising system is “proof-of-stake”. Proof-of-stake differs from proof-of-work as it changes the consensus mechanism from a competition based system to a stake based system.

Essentially, proof-of-stake works by allowing coin owners to stake their own coins in order to become a “validator”. A validator is then selected at random every time a new block needs to be created. 

A validator's staked coins are frozen whilst the next block is created and if other validators confirm the proposed block's accuracy, the selected validator receives coins as prize, much the same way the successful miner receives coins in proof-of-work. If a fraudulent or inaccurate block is detected, the selected validator loses their coins, because duh.

This drastically reduces the amount of computing power (and therefore greenhouse gas) needed to create new blocks by removing the computing competition part of mining. 

The basic premise is that instead of computing output making it unprofitable for malicious actors to edit the blockchain, it is now the fact you have to put your money where your mouth is that makes it unprofitable.

Carbon credits and offsetting

Given that around $30 billion is invested in cryptocurrencies currently, changing the very nature of how they work mid-flight is a perilous task. 

That’s why a growing number of blockchain-based organisations are sticking with proof-of-work style consensus mechanisms, but are opting to offset their carbon footprint through various green schemes instead. 

Carbon credits are a scheme where a purchaser (like a blockchain company) purchases a credit that represents a certain amount of carbon dioxide that has been prevented from entering the atmosphere (usually one credit equals one metric tonne of carbon dioxide). This, in theory, gives the purchaser the ability to then freely emit the sum of the carbon credits carbon representation into the atmosphere, sometimes receiving tax breaks for doing so, and maintain a carbon neutral status. 

Now, there are a massive amount of detractors for this method of greenifying (possibly made up word there) cryptocurrency, as they doubt the actual ability to plant enough trees in enough time to match the instantaneous greenhouse gas releases. It also just seems a bit weird to me, like buying a stranger a car so you can steal someone else's one.

Not making everything blockchain

Sometimes the simplest solution is the best. 

I wrote previously about the evolution to Web3 and how sometimes, when an industry or technology is going through a period of innovation and change, there can be a lot of “bandwagoning” and needless trend-following, as well as outright fraud. 

A simple solution to the climate effects of blockchain technology is the same as the effects of automobiles and farming : moderation. 

Not every platform needs to be decentralised through a proof-of-work blockchain. 

There are plenty of other ways to decentralise your product, platform or business that aren’t through blockchain. Usually a product doesn’t need to be built on blockchain, other than for a few snazzy marketing lines on the website (same with AI powered or machine learning), and there are actually marketing opportunities around eschewing a current trend, as Babel did by avoiding AI in building their lesson plans.

I have no doubt that cryptocurrency and blockchain technology is here to stay, and can play a huge part in democratising the Internet and financial systems. But as climate change continues to be an unignorable problem, the environmental impact of these technologies needs to become a primary consideration in their conception, rather than a side note to huge profits for early investors.