Won't someone think of the environment?

You should care about the carbon footprint of crypto even if you're not an environmentalist

One of the most common criticisms of crypto is how insanely energy-intensive it is. The types of people who discuss crypto tend to also be the types of people concerned about climate change so there’s a lot of friction here.

Don’t be Dr. Blight

How bad is it?

It’s bad. From an estimate in Sept 2021 Bitcoin alone uses as much energy as the entire country of Finland. Bitcoin enthusiasts’ counterargument is that the current banking system also uses a ton of energy, e.g. ATMs that run 24/7, banks with lights and coffee makers, etc. The problem with that argument is that presumably Finland has ATMs and banks and they still are consuming less energy than Bitcoin at its relatively low adoption rate.

Given how Bitcoin only becomes harder to mine over time, the energy requirements to maintain the Bitcoin blockchain will only grow.

If you’re curious about why Bitcoin needs so much energy this is a great primer.

tl;dr Bitcoin transactions are verified by making a computer guess a number, called a nonce. If the computer guesses correctly it earns Bitcoin for its correct guess and gets to record the “block” (aka the transaction). Because it’s a simple guessing game it makes sense to have a lot of dumb computers doing it at the same time (rather than using just one really smart computer). These armies of computers consume a LOT of electricity.

Not All Crypto

The good news is that it doesn’t have to be this way and there are other ways to do blockchain. The energy-intensive method described above, where you have armies of computers all guess the nonce is called “proof-of-work” and it’s the how Bitcoin builds its blockchain.

There’s an alternative method called “proof-of-stake” where a “validator” is randomly chosen to record the block and a random sampling of other validators is chosen to attest to the block’s validity. The validators are vetted by requiring them to hold a certain amount of that coin, aka their “stake”– this ensures the validators have skin in the game. If the validators validate a fraudulent block they lose their stake.

This proof-of-stake method uses 0.01%-0.05% of the energy of proof-of-work. The energy savings are D R A M A T I C

I’m not trying to save the environment. Why does it matter?

Let’s say you’re Dr. Blight (above) and you’re actively trying to destroy the environment but you also want to choose the best coins for your cryptocurrency portfolio. Why should you care which coins are eco-friendly?

I simply do not see how proof-of-work coins will remain profitable with the increasing costs of energy and with rumblings around the world about plans to ban these types of coins. It’s one thing to be wary of potential regulatory action but it’s another thing if governments are saying “we are going to ban this particular coin soon.”

How can we mitigate the risk?

Don’t buy Bitcoin. Don’t buy other proof-of-work coins. Focus on proof-of-stake coins like Cardono, Solana, MATIC, and Ethereum (not yet proof-of-stake but soon).

Open Questions

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