Crypto Sojourn to Green

Cryptocurrencies like Bitcoin and Ethereum have come a long way since they were launched a decade ago. From being hailed as the currencies of the internet, they have gained status as volatile digital assets. In the early years, Bitcoin mining only required a laptop, but the same is no longer a viable option now as the amount of power required to generate Bitcoin has increased exponentially.

At the present time, Bitcoin, the world’s largest cryptocurrency, consumes an estimated 133.64 terawatt hours of electricity annually – more than used by Argentina, a nation of 45 million people. Its biggest competitor, Ethereum, on the other hand, uses about 78.01 terawatt-hours of electricity per year, which is comparable to Chile, according to Digiconomist’s Bitcoin and Ethereum Energy Consumption Index.

This huge thirst for electricity comes from the proof of work (PoW) consensus mechanism. The latter is a type of mining, where powerful computers race against each other to process transactions, solving complex mathematical problems that require quintillions of numerical guesses per second. As a reward for this authentication service, miners receive new coins, which provide a financial incentive to keep the computers running.

The growing concern over the harmful effect of crypto mining on the environment has led many countries to not only ban mining, but ban these cryptocurrencies altogether. These include countries such as Algeria, Bangladesh, Egypt, Iraq, Morocco, Oman, Qatar, Tunisia and China. The latest country to ban crypto mining is Russia. But it’s not just countries that have noticed the harmful impact that cryptocurrencies have on the environment, companies have as well. In May 2021, electric car manufacturer Tesla suspended car purchases with Bitcoin due to concerns about climate change, CEO Elon Musk informed in a tweet. Musk had long been a supporter of cryptocurrency. Following his tweet, Bitcoin fell by more than 10%.

However, the good news is that the industry has woken up early and has started taking a number of initiatives in this regard. “The crypto industry is new and within 10 years of the existence of Bitcoin, people started working to make crypto more sustainable and environmentally friendly. If we compare it to other industries that have been in the industry for quite a long time, they are yet to come up with completely eco-friendly alternatives. Take the automotive industry for example. Internal Combustion (IC) engines, responsible for high carbon emissions have been around since the 19th century, but even today the automotive industry has yet to offer an eco-friendly alternative that is scalable and accessible to the masses,” Sumit Gosh, CEO, Chingari App.

In 2021, the Crypto Climate Accord, a private sector initiative to decarbonize the cryptocurrency sector by making it easier for blockchain projects to purchase offsets, was launched. So far, more than 200 companies, blockchains and individuals associated with the crypto, DeFi, energy and technology sectors have signed up as backers. Here are some other initiatives.

‘Proof of Stake’ system

While the energy system underlying Bitcoin is known as “proof of work”, some in the industry are pushing to build new cryptocurrencies on a different system called “proof of stake”. The second largest crypto, Ethereum, is transitioning from a proof-of-work (PoW) model to a proof-of-stake (PoS) system, creating Ethereum 2.0.

Also Read: Will Ethereum Merge Emerge Victorius?

Under the “proof of stake” mechanism, anyone who owns any amount of cryptocurrency can stake their tokens as collateral for the development of the blockchain. In return, the user is rewarded a fixed percentage of the pledged assets as rewards when a new block is added to the blockchain. This process is called “staking” of cryptoassets. The energy consumption of proof-of-stake is negligible compared to “proof-of-work”. It uses as little as 0.01 percent of the energy consumed in the mining process. Also, proof of stake algorithms can be operated from a laptop, while the proof-of-work protocol requires specialized computing equipment.

Then there are hybrid consensus models like Solana that integrate proof-of-history and proof-of-stake, allowing the network to handle up to 50,000 transactions per second (tps), while validating a single Bitcoin transaction takes several minutes. Furthermore, the average cost per transaction on Solana is $0.00025, which suggests that it has huge scaling potential.

Other cryptocurrency projects like Solarcoin, Power Ledger have already started using energy efficient consensus algorithms like proof of history (Solana), proof of elapsed time, proof of burn and proof of capacity.

Mining via renewable energy

It is quite common knowledge that there is an infinite supply of Bitcoin that can be mined with the way digital currency is structured. And as miners quickly approach the upper limit, the energy requirements for mining will only increase. So a number of companies have started moving towards renewable energy such as hydro, wind and solar. These include names like London-based Argo, Canadian firm Hive Blockchain and US-based companies like Bit Digital and BlockFusion. Then there’s Houston-based tech company Lancium, which raised $150 million to build Bitcoin mines across Texas that will run on renewable energy.

Co-founder and former CEO of Twitter, Jack Dorsey also noted this growing problem from crypto mining. On June 5 of last year, Dorsey announced a new investment of $5 million in Bitcoin mining using renewable energy for his American financial company. That same week, El Salvador’s President Nayib Bukele instructed state-owned geothermal companies to mine Bitcoin using 100% clean, renewable and zero-emission energy from geothermal sources. Recently, Uzbekistan legalized cryptocurrency mining by employer solar power. Moreover, it exempted all crypto operations by domestic and foreign companies from income tax.

So what percentage of mining comes from clean energy? According to the Bitcoin Mining Council, a voluntary global forum for Bitcoin mining companies, established by Michael Saylor, CEO of software company MicroStrategy, puts the number at 59.5%. However, the conclusion of a new research paper on the electricity mix and carbon footprint of the Bitcoin network (titled Visiting Bitcoin’s Carbon Footprint)published in the Elsevier journal Joule on February 25, 2022, finds that the share of renewable energy powering the grid drops to 25.1% in August 2021 from 41.6% in 2020.

While renewable energy sources such as wind and solar help reduce the cost of mining, they are not without their limitations as they are an intermittent source of energy. Bitcoin miners have a constant need for energy. In the case of wind energy, electricity production fluctuates with the weather. An oversupply can lead to network overload, and even lead to power outages. Other renewable sources such as solar energy also pose problems with their inability to generate consistent and sufficient power for all-day trading without the interruption of shutdowns. The Bitcoin ASIC miner, once turned on, will not be turned off until it either crashes or becomes unable to profitably mine Bitcoin. Because of this, Bitcoin miners increase the demand for baseload on a grid.

New crypto chip

In April this year, Intel, one of the largest chip manufacturers in the world, announced a new Blockscale ASIC (Application Specific Integrated Circuit) chipset, to improve the efficiency of crypto mining performed through proof of work mechanism.. It promises Bitcoin miners to get the same amount of Bitcoin for less energy. However, against the norm in the industry, Intel will provide its customers with only the chip rather than the finished ASIC mining system. Furthermore, the company claims that it will be able to supply these chips in volume without compromising the availability of new CPUs or GPUs. Companies such as Argo Blockchain, Hive and Block Inc have signed up to buy the chip.

USA the new hub for mining

After China banned cryptocurrency in September 2021, the Bitcoin mining map changed significantly. The US quickly became the global leader in Bitcoin mining and the number one ranked country in terms of hash rate. This was due to a number of reasons such as the presence of renewable energy sources, low energy prices and pro-cryptocurrency policies. Texas ticks all the boxes and has a lot to offer the miners. The state boasts some of the cheapest energy sources on the planet – a huge incentive for miners competing in a low-margin industry where their only variable cost is usually energy. The state is also home to crypto-progressive and pro-business politicians. West Texas is a mecca for renewable energy in the US.

India remains a laggard

Despite India being home to vast natural resources like solar power (it is the fourth largest solar power producer in the world, with more than a third of its total energy capacity produced from renewable sources), it remains a laggard in crypto mining.

The Indian government and central bank have so far had a love-hate relationship with cryptocurrencies. In the past they have openly criticized the asset class – and even temporarily stopped banks from facilitating such transactions – they have also hinted at launching their own digital coin. In 2017, it imposed a ban on the import of ASCI machines specifically designed for crypto mining, forcing Bengaluru-based blockchain technology company AB Nexus to stop mining Bitcoin and Ethereum.

States like Rajasthan, Karnataka, Telangana, Tamil Nadu and Andhra Pradesh, which are in the top five states in terms of solar power generation, make ideal candidates for crypto mining. But India is letting this potential go to waste.

Raj Kapoor, Founder, India Blockchain Alliance, says, “Concerns regarding high energy consumption in mining can be tackled by harnessing vast natural resources. But India has missed the bus and is missing out on huge revenue generation opportunities by not regulating mining. (When a person mines a crypto, he gets a reward that is treated as income and is taxed. There are thousands and thousands of transactions happening all over the world. If a fraction of the mining is done in India, the income comes to the country. Not only will it will be part of our GDP and tax but will also encourage jobs. So in a way the whole ecosystem will be affected).