Are “Green” Cryptocurrencies Actually Green?

What Are Green Cryptocurrencies?

Cryptocurrency is dogged by the stigma of being “bad for the environment.” Crypto pioneer and the most successful crypto, Bitcoin, uses a method called proof of work (PoW) to ‘mint’ new coins, which involves generating new blocks. PoW also secures the network by fending off malicious activity and events like denial of service attacks (DoS).

It also solves the problem of double spending — a pesky problem that killed some early forms of digital currencies. Double spending involves a single transaction being broadcasted more than once, allowing one person to spend a currency several times.

Bitcoin generates blocks every 10 minutes in a process that involves the computers on the network making countless guesses until the correct hash to unlock the next block of transactions is found. This guessing process, referred to by some as solving a mathematical puzzle, consumes electricity in the form of 100+ TWh annually.

It’s a lot of power, admittedly, and this very issue is a bone of contention. Environmentalists have been up in arms about it, with regulators, who are uncomfortable with crypto for other reasons, capitalizing on the fact and putting a squeeze on the industry.

An example is China, the largest crypto mining region, until the government sent miners packing. This month, Swedish financial regulator Finansinspektionen called on the European Union to ban crypto mining outright.

The environmental impact concerns have also caused a fallout with companies that had adopted Bitcoin as a means of payment. Electric cars company Tesla pulled the plug on payments in May 2021 after announcing that it would be taking BTC for payments that February.

This is where green or environment-friendly cryptocurrencies come in. These cryptocurrencies attempt to reduce the carbon footprint on the environment one way or another. Such currencies either utilize consensus mechanisms other than the offending PoW or reduce carbon emissions by encouraging eco-friendly activities.

How Do You Achieve a Green Cryptocurrency? 

In response to the backlash on the environmental implications of cryptocurrencies, new and existing cryptocurrencies are exploring ways to mitigate the situation. For instance, new ones are implementing consensus mechanisms that use infinitely less energy than PoW. Others aim to raise environmental awareness.

Below, we look into each of these “greenifying” ways and whether they work.

Green by a consensus mechanism 

Green cryptocurrencies steer clear of PoW. Almost every non-PoW consensus mechanism out there is more friendly to the environment. The most common of such mechanisms is proof of stake (PoS). PoS involves choosing validators based on how much currency they have locked up (stake)—no crazy, power-gobbling mathematical guesses.

PoS is employed by several third-generation cryptocurrencies, including the top ten Cardano, Solana, Polkadot, Algorand, and more. Then there’s Ethereum, which successfully transitioned from PoW to PoS through the merge.

Another interesting non-PoW consensus mechanism is the novel proof of time and space employed by the crypto Chia. Chia, created by BitTorrent creator Bram Cohen, generates new coins based on the amount of hard disk space devoted to it.

Let’s now circle back to whether such measures successfully make cryptocurrencies green.

With PoS cryptocurrencies, yes. Ethereum says that switching to PoS from PoW cuts back energy consumption by 99.95%. A report by the Crypto Carbon Ratings Institute (CCRI) ranked Polkadot, Cardano, and Solana as some of the least energy-intensive crypto projects.

It appears to be a different story, though, for Chia. The Guardian reported shortages of hard and solid-state drives (SSDs) as Chia users purchased them in droves. Such drives are brought in quick succession and discarded in the same fashion.

Tom’s Hardware notes that the validation process of Chia mining can permanently break a 512GB SSD drive — which would normally last years, in just 40 days. With that, you have unrecyclable electronic material creating e-waste. When e-waste is improperly disposed of, it can be hazardous — releasing toxic chemicals and fumes like mercury into the environment. For this reason, the jury’s verdict is that Chia might not be so green.

Green by reducing carbon footprint 

Cryptocurrencies that reward people for actions that promote eco-friendliness are also green. Two such currencies are Bitgreen and SolarCoin.

BitGreen 

BitGreen models itself as a sustainable cryptocurrency that solves Bitcoin and other PoW cryptocurrencies’ high energy use. The project:

• issues carbon credits
• allows people to buy carbon credits
• removes carbon credits from circulation to offset carbon
• will enable people to buy green bonds and support the financing of green projects with crypto

SolarCoin

SolarCoin directly rewards people worldwide with SolarCoin when they install solar grids. It aims to lower electricity production costs by incentivizing solar power production.

It’s safe to say both these cryptocurrencies earn the “green cryptocurrencies” badge. Both BitGreen and SolarCoin promote eco-friendliness by involving and rewarding people for environment-conscious behavior.

The Bottomline 

As you’ll realize, not every “green” cryptocurrency is green. Some projects have successfully managed to be energy efficient while being environmentally sustainable. Others have good intentions, but we’re not there yet.

On an ending note, the market still decides the value of the cryptocurrency, and the status of being green doesn’t implicitly increase its value.