Cleaning Up the Blockchain:

Decarbonizing Mining Operations

The world currently sits at a fork in the road on global climate change. For decades, leading scientists have been warning that emissions must be reduced to pre-1990 emissions levels, or our biosphere will undergo radical changes in its air, land, and water. While there has been some marked investment from some countries as they seek to address their own internal carbon emissions, some of the largest players have been slow to address their own emissions, or are completely ignoring their own responsibilities. This global tragedy of the commons is unfolding during our lifetimes, but not every participant is addressing it with the urgency required.

This is why the news of cryptocurrency’s large carbon footprint comes as a shock to many in the community. The dreams we all have that blockchain will create a faster, more efficient, more connected world may be on a collision course with disaster. The most recent calculation (conservatively) estimates that around 69 million tons of carbon are released annually to power the servers which crypto miners use to mine coins and tokens. This is comparable to the annual emissions of Austria, a country with 9 million people. For an economic sector which claims around 25 million users, this is a truly staggering number. To put this in perspective, the only two other sectors to beat out cryptocurrency operations in carbon emissions are those from international shipping and aviation. These two economic activities though are the burden of billions of consumers, not 25 million.

How did something with such utilitarian beginnings end up becoming such a problem? The answer lies in how blockchain technology functions. For traditional fiat currencies, national minting bureaus print paper currency. Digital currencies conversely are created through a computer function known as mining. Mining currently involves utilizing computer algorithms to run various cryptographic calculations to complete computational challenges. Once one has been solved, a coin is ‘minted’ and is given to the user who solved it.

However, due to the nature of cryptocurrency scarcity, the remaining unsolved cryptographic functions become increasingly harder to solve, meaning more energy is required to run those computer servers. This translates to a tremendously high amount of electricity required to power the vast network of global computers which power mining operations. The reason why this activity has such a high energy demand is because of the mining methodology that most of the world’s blockchains use, something called “Proof of Work.” Proof of work (PoW) essentially involves miners randomly guessing a sequence of digits to ‘unlock’ a coin. It is not the work of humans randomly typing different numerical sequences into a query box, but rather thousands of computers connected and programmed to guess these sequences (also known as hashes). This is not the hard, arduous work of miners employing analytical or logic skills, but rather whose computer is fastest.

With ever-increasing difficulty of mining cryptocurrencies, the environmental time bomb of blockchain becomes self-evident. If the equations become harder, then more computing power is required, which increases the electricity demand required by this activity. Since electricity costs money to consume, blockchain miners opportunistically search for the cheapest electrical utilities across the world, and set up their mining farms there.

Here is where the problem lies. In our globalized world where mining farms can be set up in any country with lax regulation, mining operations have exploded in cheap electricity markets. Incidentally, this is why niche blockchain communities have sprung up in the unlikeliest of countries. Globally, natural gas and coal still maintain the top spots for cheapest fuel source, for the most part. Hydro power in some countries is cheaper, as is solar, but for the most part, natural gas and coal are still the drivers of global utilities markets. In 2016, the carbon emissions from mining a single Bitcoin equaled the amount of 1.6 American households per day.

Blockchain mining operations do not have to continue down the same path they are headed down today. Governments can and should step in to regulate the amount of megawatts/gigawatts that are allowed for blockchain mining. However, many national governments are not interested in greening their utility grids, as many government treasuries are filled by fossil fuel revenues. Another solution would be for miners to set up their farms in renewable energy utility zones, but again, this requires goodwill on the part of interested parties. Therefore, the only way out of this spiraling disaster is for blockchain mining to innovate, and shift towards a different methodology for mining. Currently, there is a methodology that is not as computationally intensive, which is called Proof of Stake (PoS).

PoS is a class of algorithm by which a blockchain network seeks distributed consensus. In this set-up, the creator of the next block on the blockchain is selected through different variations of requirements: PoS can be determined by age, volume of crypto holdings, and even randomization. The clear difference is that this mechanism no longer requires running computer farms to randomly select different sequences of code to unlock something. PoS seeks to incentivize miners to participate by rewarding them just for engaging with their blockchain, and rewards the most active users.

Although Ethereum has not yet fully integrated PoS into its blockchain, its arrival is imminent. For the past 2 years, the Ethereum smart contracts network has been working on a plan to shift its protocol to a PoS methodology for its platform. Since this is the world’s largest blockchain network, this is a big deal. It would be like if the entire economy of the United States switched to renewable energy, something that is decades away.

New platforms like Universal Protocol will benefit from Ethereum’s shift to PoS. UPP is based on wrapping everything into an ERC-20 compatible token, which would allow all non-Ethereum native tokens, like Bitcoin or Litecoin, to be traded on the Ethereum network. Since PoW will no longer be an option, this means that new blockchain transactions in the future will be significantly less carbon intensive than they are today.

There are also other means by which blockchain companies can improve their sustainable practices. One method, which Universal Protocol is implementing, is by donating to environmental non-profits and NGO’s. Universal Protocol’s structure is unique.

“Universal Protocol has structured itself as a metamorphosizing industry utility whose operating profits - that income exceeding the costs of maintaining and growing its platform - can only be used to repurchase its tokens. Once the UPT token has been repurchased to its eventual floor of 100mm tokens, all further profits can only be given to environmental NGO’s. Hence, in a structural first: an organization is created that serves an initial profit motive (in a manner that is environmentally friendly and proactive), but then transforms into an entity whose express and only profit motive is environmental regeneration,” Co-founder & CEO of Uphold, JP Thieriot.

The majority of the world’s nations have agreed that global climate change is an imminent and existential threat. Some countries have created thorough decarbonization plans for their national economies, but many are still wandering around in the dark. The largest tragedy of the commons is unfolding during our lifetimes, but with key transformations like switching mining operations over to a Proof of Stake consensus, there is still enough time to radically change the course of anthropogenic climate change.