Greener cryptocurrencies and the sustainable future of digital assets
Earlier this year, Tesla CEO Elon Musk decided to withdraw his support for Bitcoin on environmental grounds due to the amount of electricity needed to mine the digital asset. On May 12, the CEO tweeted that Tesla would no longer be accepting payment in Bitcoin on climate risk concerns, sending the world’s largest digital currency tumbling.
Of course, this speaks volumes about how much sway Elon Musk has on digital assets, but it also highlights an important trend: the growing influence of environmental considerations on investment decisions. In the world of traditional finance, investment funds that take into account environmental, social, and governance (ESG) issues have been performing well over the past 18 months, both in terms of inflows and performance. And now, the world of digital currencies is on the same path.
For example, earlier this month, cryptocurrency mining company Argo Blockchain announced it has become “climate positive” for its Scope 1, 2 and 3 greenhouse gas emissions. Climate positive means the company is removing more CO₂ emissions from the atmosphere than it is producing through its operations, while Scope 1, 2, and 3 cover all the emissions associated with a company, including those occurring indirectly in its value chain. In other words, Argo is reducing its negative impact on the climate as much as possible.
Naturally, Argo is not the only example of climate consciousness becoming a driving force in the world of digital assets. Soon after Musk complained about Bitcoin’s climate credentials, MicroStrategy CEO Michael Saylor formed an industry group called the Bitcoin Mining Council, which aims to address sustainability concerns when it comes to mining BTC. After all, it has been estimated that the global Bitcoin network currently consumes around 80 terawatt-hours of electricity annually, roughly equal to that of Finland.
We have also seen public figures such as “Shark Tank” star Kevin O’Leary begin differentiating between “dirty” and “clean” Bitcoin, saying he would never buy “blood coins” from China. He believes the next couple of years will see the emergence of two distinct Bitcoin markets, and naturally advocates only buying so-called “clean” (or environmentally friendly) Bitcoin.
As Musk pointed out in his tweet, though, Bitcoin is also facing stiff competition from coins and tokens that have far less of an impact on the environment. According to research from Texas-based TRG Datacenters, the three most eco-friendly coins/tokens are IOTA, XRP, and Chia.
The currency with the lowest environmental impact is IOTA, designed to facilitate microtransactions between devices on the Internet of Things (IoT). It uses a consensus algorithm, called the Tangle, which requires users to validate two transactions before making a transaction of their own. XRP is the currency used by the Ripple payment network, though its environmental credentials are somewhat overshadowed by the fact that Ripple is currently embroiled in a lawsuit in the US.
Chia, meanwhile, is interesting in that it uses Proof of Space and Time to replace the energy-intensive Proof of Work (POW) mechanism that makes Bitcoin so environmentally unfriendly, as well as the Proof of Stake (POS) model that newer blockchains now utilize. POW requires miners to use huge amounts of energy to solve complex mathematical problems, while POS relies on a more energy-efficient network of validators to make the blockchain secure.
Chia’s Proof of Space and Time model, meanwhile, relies on miners filling their storage space with random numbers. The Chia blockchain comes up with its own random number and the miner with the closest match wins. In essence, miners with the largest hard drive have the biggest chance of winning, as they can store more random numbers. Crucially, though, this model eliminates the need for energy-intensive computational processes that have earned mining such a bad reputation.
Undoubtedly, this sort of innovation is only going to accelerate as pressure intensifies to make digital assets more environmentally friendly. This year already saw the launch of the Crypto Climate Accord (CCA), which now counts more than 150 companies and individuals among its supporters, including Ripple, SwissBorg, Argo Blockchain, and many more. The aim of the CCA is to decarbonize the global crypto industry by prioritizing climate stewardship and helping firms transition to net-zero greenhouse gas emissions by 2040.
It’s not just about preserving the planet, either. Going green is a proven way to grow client bases. For example, research conducted by YouGov in the UK shows that women are more conscious of investing responsibly than men, with 80% of female respondents saying it was an important factor for their investment portfolios. With women typically underrepresented in the world of digital assets, this could present an opportunity for savvy providers. And so, with these benefits in mind and pressure mounting on all sides, it may be only a matter of time until the world of digital assets goes green.