Why cryptocurrencies go green

Under the new EU Directive on Corporate Sustainability Reporting, the disclosure requirement applies to large, small, and medium-sized European businesses. The rule applies to non-European companies if they have a branch in the EU or if their trade turnover with Europe exceeds $150 million. Information on the environmental impact will need to be submitted as early as next year.

At the same time, the eco-reporting of cryptocurrency companies can significantly spoil the data on the energy resources they consume. In addition, the crypto industry's impact on climate change is beginning to worry the authorities and investors. Therefore, miners are trying to make crypto mining processes more eco-friendly. Some crypto projects position themselves as environmentally friendly (and, in many ways, they are).

Electricity Consumption: Green Crypto vs. Visa

Source: CCRI

“Green” crypto and its features

Here we can note the recent transition of the Ethereum blockchain from the Proof-of-Work (PoW) protocol to Proof-of-Stake (PoS). Among other benefits, PoS eliminated the need for energy-intensive mining by replacing miners with validators. They confirm new transactions with a “stake” (coins temporarily rented from “stakers”) and receive a reward in ETH coins for this (sharing it among all users who have locked their coins in favor of the validator). The transition immediately reduced the energy consumption of the Ethereum network by 99.9%.

In turn, the Polygon platform said it had achieved carbon neutrality. The company voluntarily redeemed a carbon credit for $400K (a carbon credit is a permit allowing to emit carbon dioxide above allocated quotas). Thus, Polygon compensated 105K tons of CO2 that it has produced since its launch.

The Chia coin reduces carbon emissions with the Proof of Space and Time (PoST) protocol. It uses free space on the user's hard drive, fixing the time when the data array was stored there instead of the power of video cards or processors. The Chia Network claims approximately 0.1% of the BTC network's power consumption is used to operate the network. However, from the environmental activists' perspective, the concept of Chia has a serious drawback. As a result of the coin's “growing” process, computer equipment has to be changed once a month. At the same time, Chia Network gives a second life to used PCs and provides an opportunity to earn money for data storage providers with space to spare.

The Algorand network has partnered with ClimateTrade, which helps businesses track their emissions using the blockchain. Algorand has now implemented a green smart contract that automatically sends a certain percentage of commissions to the carbon credits purchase. In addition, Algorand Network uses an improved PPoS protocol and claims that one of its transactions consumes only millionths of kWh, while a single bitcoin transaction uses more than 1.2K kWh.

Solana achieved carbon neutrality by joining the carbon offset program. Solana improves energy efficiency by combining PoS and a unique Proof of History (PoH) protocol. PoH adds timestamps to blocks, which makes it possible to determine precisely when a transaction occurred. As a result, the Solana blockchain consumes just 0.166 Wh per transaction, according to Crypto Carbon Ratings Institute (CCRI).

Power consumption in PoS networks

Source: CCRI Crypto Sustainability Indices

The green streak will continue for crypto in 2023.

Obviously, in the face of climate pressure from the authorities and rising energy prices, the crypto industry is betting on reducing emissions and energy efficiency. Crypto's green efforts are also aimed at increasing support from investors and users.

At the same time, calling any crypto project completely environmentally friendly is prevaricating. Even if we leave aside the carbon credit market, which is more about money than the environment. Computer equipment or electricity production often uses resources and raw materials that can hardly be called renewable. Here you can draw analogies with the “green” wind energy. Wind turbines are made from steel, smelted in very energy-intensive, “dirty” industries. Unfortunately, at this stage in civilization's development, humans cannot function without leaving painful marks on our planet's body. But, as we see, humanity strives to fix the environment, including in the cryptocurrency industry.