Is the world’s stance on crypto’s energy consumption shifting?
It is human nature to be fearful of what we don’t understand, and nowhere has that been more apparent in recent years than the ongoing debate around cryptocurrencies’ energy consumption. The argument criticising Bitcoin for using too much energy to mine its currency, albeit flawed, is not new.
However, with the publication of an article by the World Economic Forum (WEF), a once highly vocal proponent of Bitcoin, could this mark the beginning of a crucial turning point in criticism of the environmental effects of the technology behind the blockchain? Let’s find out.
Proof of misunderstanding
Before we look at the WEF, it is important to place their article within the wider context of both political and editorial commentary surrounding the issue of Bitcoin’s impact on the environment.
In January, a cohort of U.S. Representatives came together for the first congressional hearing on Bitcoin in which the argument to change Bitcoin’s code away from proof of work (PoW) was put to several witnesses who then had to provide responses as to why such a move away from PoW would defeat Bitcoin’s purpose. The questions posed at the hearing highlighted a lack of knowledge on PoW prevailed by most representatives as they questioned the energy use of Bitcoin mining.
In March, The New York Times declared to its readers that a single Bitcoin transaction now requires more than 2,000 kilowatt-hours of electricity or the equivalent of power needed to power the average American household for 73 days. While factually accurate, this statement fails to take into account the full picture with individual transactions taking place in a fraction of a second, consuming less energy globally than tumble driers or domestic refrigeration.
The infrastructure required to allow these transactions to take place does in fact require a lot of capital and energy to maintain. However, much like significant inventions of the past such as the internet – technology that is essential to human existence – the argument can be made that the result was worth the high asking price. As the WEF later goes on to argue in their about-turn article: ‘Utilities are accepted as they add value to society. Their energy consumption becomes less a question of morality than one of basic human necessity.’
Greenpeace at odds with Bitcoin
Aside from similar articles asking the same question of ‘Can Crypto Go Green?’, one high profile example linking Bitcoin directly with climate change was Greenpeace’s Change The Code: Not The Climate campaign. As the title suggests, the campaign aimed to change the code of Bitcoin so it moves away from proof of work to a proof of stake mechanism, directly linking Bitcoin’s current mining system to climate change. Lawmakers in the European Parliament also tried something similar, voting on a proposal to ban Bitcoin’s energy-intensive form of mining.
Unfortunately in Greenpeace’s case, their argument was based on a misunderstanding of how PoW, Bitcoin’s consensus protocol, works. Greenpeace argued that just 50 people would be needed to change the code to help achieve the aim of a ‘greener’ Bitcoin mining process. However, PoW requires a far higher number of participants on the network to agree before this could be achieved. As those using the Bitcoin network prefer how things work currently, this is unlikely to happen. If Greenpeace did in fact want to change the code, a far simpler way to do it would be to create their own separate version or ‘fork’.
This has often been the way fundamental disputes around how Bitcoin should evolve have been settled. One of the most famous examples includes Bitcoin Cash. However, it should be noted that even if they did create a fork of Bitcoin taking into account its climate footprint as the primary focus, that doesn’t mean anyone would actually use the network. With Bitcoin Cash having a market cap far lower than Bitcoin’s, this could pose a problem for Greenpeace should they consider this approach.
So, now you’ve seen how governments and institutions may have gotten confused in their assessments, how about those organisations who have evolved their stance, taking into account the larger context of Bitcoin’s potential as both a currency and the technology that underpins it? Enter the World Economic Forum.
Bridging the gap
Once a stalwart among the many voices calling to ban, change or outlaw Bitcoin for its supposed environmental impact, the WEF made an about-face in March with an article outlining the flaws of Bitcoin’s energy consumption debate.
This came from the same organisation that, as early as 2018, shared data predicting that Bitcoin’s energy usage would soon far surpass that of the entire world. Later this year, they then joined Greenpeace in promoting the argument for changing the code behind Bitcoin. However, with their latest article, the organisation has now appeared to take a far more balanced approach, acknowledging the progress those involved in developing cryptocurrencies have made toward greater sustainability.
The blog is part of an agenda series led by the World Economic Forum’s Crypto Impact and Sustainability Accelerator (CISA) and highlighted key factors demonstrating the key role crypto could play in the future of green energy, such as the Crypto Climate Accord, a crypto community-driven initiative focused on the decarbonisation of cryptocurrencies and the potential of Web3 innovations could have in driving positive change.
Bitcoin also helps to solve problems like flaring or making use of stranded energy, as pointed out by Margot Paez, Fellow of Renewable Energy, Environmental Studies at the Bitcoin Policy Institute on Twitter:
“Bitcoin miners monetise the capture of flared gas, which is a 100% combustion conversion from CH4 to CO2 and H2O. This generates electricity to operate the mining equipment. While this releases CO2 emissions, this is better than releasing methane directly into the atmosphere. Methane is 84x better at trapping heat than CO2 over a 20-year period.”
While the WEF’s shift represents a refreshing, balanced approach to the complex nature of Bitcoin’s relationship with the environment, the rate at which headlines carrying the ‘Bitcoin is bad for the environment’ flag are appearing to suggest that there is a long way to go. However, with such a high profile organisation highlighting areas where the traditional financial world and crypto may have misunderstood each other, hopefully, more will follow this example of a more evidence-based, thoughtful approach to the discussion.