Blockchain technology is on its way to being considered by organizations as a way to reduce carbon emissions and improve the environment.

Climate change has become an important issue over the years due to concerns over environmental changes caused by the emission of greenhouse gasses into the atmosphere. Conversations have even reached the crypto space, and blockchain technology is being considered a potential tool to reduce carbon emissions.

Cryptocurrencies like Bitcoin (BTC) and Ether (ETH) that use the proof-of-work (PoW) mining algorithm have come under scrutiny due to their alleged energy expenditure. To see where this scrutiny comes from, it first needs to be known how much energy is used when mining PoW cryptocurrencies.

Unfortunately, estimating the amount of energy necessary to mine Bitcoin and other PoW cryptocurrencies cannot be calculated directly. Instead, it can be estimated by looking at the network’s hash rate and the power usage of the mining setups of expensive graphics cards.

Initially, Bitcoin could be mined with a basic computer, but as the network matured, the mining difficulty increased, requiring nodes to use more computing power to mine a new block. Due to the increased power requirements, to mine Bitcoin today, one would need multiple graphics cards as well as cooling systems to stop them from overheating. This is what has led to the high energy usage of PoW networks like Bitcoin and Ethereum.

According to the New York Times, the Bitcoin network uses around 91 terawatt-hours (91 TWh) of electricity annually, which is more energy used than countries like Finland. Other sources put this number at 150 TWh per year, which is more energy than Argentina, a nation of 45 million people.

However, as mentioned earlier, calculating Bitcoin’s energy usage is not a straightforward task, and there have been disagreements about the actual energy usage of the Bitcoin network. For example, Digiconomist claimed that Bitcoin uses 0.82% of the world’s power (204 TWh) while Ethereum uses 0.34% (85 TWh). Ethereum developer Josh Stark disputed the accuracy of these claims and highlighted Digiconomist’s tendencies to place estimations on the higher end while pointing out data from the University of Cambridge that estimated Bitcoin’s actual consumption to be 39% lower (125 TWh).

Additional sources have agreed with Bitcoin’s energy expenditure being on the lower level. The Cambridge Bitcoin Electricity Consumption Index estimates that the Bitcoin network uses 92 TWh of energy per year. A research report by Michel Khazzaka also claims that traditional banking systems use 56 times more energy than Bitcoin.

R. A. Wilson, chief technology officer of 1GCX — a global digital asset and carbon credit exchange — told Cointelegraph, “To say that Bitcoin is ‘bad’ for the environment leaves a number of nuances and important conversations unexplored. It’s true that Bitcoin and other proof-of-work chains do consume larger quantities of energy than blockchains that operate on a proof-of-stake consensus mechanism. However, there are a number of other considerations to take into account when analyzing and understanding the energy consumption of Bitcoin and blockchain in general.”

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“For example, the sheer amount of energy consumed doesn’t directly equate to environmental impact. It is also important to understand where that energy is coming from. Currently, Bitcoin miners use around 55%–65% renewable energy, which is impressive for an industry so relatively young. Comparatively, the sustainable energy mix in the United States is only 30%. Bitcoin can, therefore, continue to incentivize the rise in renewable energy sources within the crypto mining industry and in the U.S. more broadly.”

There may be no clear consensus on the environmental impact of cryptocurrency mining on PoW networks. Still, there has been a push toward using blockchain to become more energy-efficient and improve the environment. As a result, sustainable energy sources for Bitcoin mining have also grown by almost 60% this year. Blockchain is also being used to help remove carbon dioxide and other greenhouse gasses from the atmosphere. In some areas, blockchain technology is being used alongside carbon credits to try to improve the atmosphere.

What are carbon credits?

It is common to see the terms “carbon offset” and “carbon credit” used interchangeably, but they have different meanings. A carbon offset refers to an action that intends to compensate for the emission of greenhouse gasses into the atmosphere. Examples of carbon offsets include planting trees, reforestation and using renewable energy sources instead of fossil fuels. 

A carbon credit permits an organization to produce a certain amount of greenhouse gasses depending on how many credits they own. One carbon credit represents one ton of carbon dioxide or other greenhouse gasses. Organizations receive a set amount of credits, meaning they can only produce a limited amount of greenhouse emissions.

Entities that produce emissions above the limit must purchase more credits, while entities that produce emissions below the limit can sell any leftover credits. The scheme works by providing a financial incentive for polluting entities to produce fewer greenhouse gasses. If their emissions stay below the limit, they can save or make money (by selling credits), while they lose money by producing emissions above the limit.

Wilson believes that blockchain technology can help the carbon offsets industry: “The carbon offsets industry has the potential to scale to a multitrillion-dollar market over the next several years, but it currently suffers from a number of obstacles including fraud and duplication of credits. The immutability and security of blockchain technology can help solve these challenges by ensuring that all records of carbon credit sales are responsibly and accurately tracked.”

“While blockchain technology alone cannot solve these problems in the market, a combination of blockchain and associated infrastructural services such as digital exchanges, a global registry and Anti-Money Laundering/Know Your Customer for purchase, creation and retirement can help to vastly improve existing bottlenecks,” he continued.

How organizations use blockchain to reduce emissions

EarthFund is one platform where users can donate cryptocurrency, mainly Tether (USDT), to different environmentally friendly causes on the platform. The platform also has a decentralized autonomous organization (DAO) and houses a treasury that allows DAO members to decide how the funds are used. Smaller communities within the ecosystem choose which causes get highlighted for donations. Carbon capture and storage, as well as renewable technologies and conservation, are some of the areas that are explored when it comes to improving the environment.

Toucan is another platform that has created tokenized carbon credits, which are crypto tokens backed by real-world carbon offset credits. The carbon offsets are represented on-chain as Base Carbon Tonnes (BCT). In November 2021, Mark Cuban stated that he had bought $50,000 worth of carbon offsets every 10 days and placed them on-chain as BCT.

Traditional organizations and governing bodies have also looked to blockchain technology as a possible solution to reducing carbon emissions. Last year, for example,the United Nations Environment Programme and other governing bodies came together at the Middle East and North Africa Climate Week to look at blockchain’s potential for tackling climate change.

In April 2022, Algorand announced that its blockchain was entirely carbon neutral. This is achieved through its pure proof-of-stake mining algorithm, which doesn’t involve any mining but instead relies on a process where validators are randomly selected to verify the next block.

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Organizations in the crypto space are looking toward improving the ecosystem through blockchain-tracked donations to carbon removal projects, tokenized carbon credits and carbon-neutral blockchains.

Finally, Ethereum 2.0 is on the horizon, which will see the blockchain network transition from a PoW consensus algorithm to proof-of-stake, as well as some additional changes. PoS does not require mining hardware to validate blocks, drastically reducing its energy consumption. Due to a lower amount of energy being used to power the network, fewer fossil fuels will be burned, reducing the amount of carbon emitted into the atmosphere.

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