Cryptocurrencies have evolved rapidly since their somewhat obscure origins. The digital currency trade is making significant progress in establishing its place in the financial world. But many environmentalists have raised concerns over cryptocurrency mining, which consumes vast amounts of energy and has negative climate impacts.
Where Crypto’s Climate Impacts Come From
Crypto mining is the process by which new coins or tokens are validated and entered into circulation. It acts as a critical component within the maintenance and development of the blockchain ledger. The mining process requires highly specialized hardware designed to solve complex computational mathematical problems. Hidden blocks of coins get awarded to the first computer that can find the solution to the problem. Once this is work completed the process starts again.
This is known as Proof of Work (PoW). It’s widely used in crypto mining as a means of validating transactions and mining new tokens. PoW blockchains are decentralized mechanisms that require solving cryptographic puzzles, which act as a security measure, preventing just anyone from participating in the system. Instead of tracking account balances in central databases, digital currency transactions are recorded by a distributed network of miners and incentivized by block rewards. Crypto’s huge energy appetite stems from the rather competitive nature of PoW blockchains.
The United States has become a hotspot for the world’s international crypto miners. In the first half of 2021, the U.S climbed from fifth to second on that list, is now the leading Bitcoin mining country, contributing 35% to the international monthly mining hash rate.
Bitcoin alone is currently responsible for 1% of the total global electricity consumption – this is as much as entire countries account for. The statistic is all the more alarming since the cryptocurrency trade is still in its infancy and is currently growing exponentially. It currently produces 95 Mt of carbon emissions a year, and 1000 kg for a single transaction. Bitcoin miners have gone as far as buying abandoned coal plants and bringing them out of retirement to fulfill their energy needs.
Bitcoin has the largest carbon footprint of all cryptocurrencies, but the whole industry is has a carbon emissions problem. Cryptocurrency, in general, is a major greenhouse gas emitter and the emissions from the sector are rising rapidly, threatening to derail the carbon emissions reductions we need to avoid catastrophic global warming.
Ethereum, for example, has the next largest footprint after Bitcoin, with annual emissions of about 46 Mt of CO2, and 100 kg per transaction. It uses a mining/validation system that makes it more accessible to everyday users, but those features also make it carbon-intensive. Since PoW mining requires so much energy, Ethereum is working to switch to a Proof of Stake (PoS) model which could vastly increase energy efficiency.
But making sweeping changes like switching mining PoS or to renewable energy sources will take time, and not all players will adopt the changes. That opens a market for carbon offsets to counteract crypto’s rising carbon emissions.
EcoPenguin is the world’s first carbon offsetting platform for cryptocurrency. It has teamed up with the non-profit Carbon Offsets to Alleviate Poverty (COTAP, the first carbon offset provider to accept all major forms of cryptocurrencies. The partnership enables them to provide the crypto community with convenient ways to take action and responsibility for its environmental footprint and mitigate its climate impacts.
EcoPenguin’s mission is to aid in decarbonizing cryptocurrency and build an eco-friendly crypto community. COTAP’s mission is complementary in that it works to empower individuals and organizations across the globe to address climate change and global poverty together.
EcoPenguin co-founder Joshua Aakash says that “EcoPenguin advocates shifting to PoS as the best near-term path to decarbonization, but it won’t happen immediately, and not everyone will do it…Before long we may also see a carbon tax of $40-$60 a tonne on major energy consumers, which might get reluctant crypto actors to take lowering their emissions seriously. But the regulatory approach would cost large tokens hundreds of millions of dollars and add considerably to the cost of transactions. It remains to be seen how these various approaches will play out. Meanwhile, by partnering with COTAP we’re able to offer verified carbon offset solutions for crypto tokens, projects, traders, or anyone in the crypto space who wants to take responsibility for their carbon footprint here and now.”
The EcoPenguin platform is available for use and does not charge users any fees. The company is also in the process of building its own line of eco-friendly NFTs, funkypenguins.io, which will automatically offset its own carbon footprint. Users who purchase COTAP offsets on the EcoPenguin platform will be credited with an EcoPenguin NFT digital certificate.
“Crypto is growing explosively, and it’s urgent to head off its potentially massive climate impacts,” said COTAP founder and CEO Tim Whitley. “Other burgeoning industries have become more efficient and greener as they’ve matured, and crypto can, too. Switching it to sustainable energy sources is the paramount goal, but that takes time, so in the interim offsetting is an important part of the solution. A lot of cryptocurrency offsetting activity today is speculative, and/or it converts carbon credits into tokens and keeps them tied up on the blockchain for years, as opposed to the tried-and-true approach of permanently retiring credits on existing carbon registries. The EcoPenguin concept really resonated with us because they share our belief that there’s a huge crypto/carbon leadership gap, and that crypto can be a force for material good if it adopts the right approaches. So we’re excited to be working together to bring the crypto community-verified, high-quality offsets that will do tangible good today, creating real-world benefits for the climate and low-income communities.”
The Bottom Line
The cryptocurrency sector is hurtling towards alarmingly high carbon emissions. And with the industry growing rapidly, its burgeoning carbon footprint is on a collision course with the imperative to cut emissions and head off runaway climate change. EcoPenguin’s partnership with COTAP is a step in the opposite direction, toward slowing cryptocurrency’s carbon emissions and reducing its negative climate impact, which will help give it the room it needs to continue to grow. That’s the right direction for the industry.