Greater Innovation Is the Solution to Bitcoin’s Carbon Footprint

The growth of blockchain technologies like cryptocurrencies seem to be doubling each year, and this fast growth has revealed the unintended environmental consequences just as quickly. Last month, Elon Musk announced that Tesla is accepting Bitcoin as a form of payment for its fast-selling electric cars. Enthusiasts for cryptocurrencies celebrated it as a milestone for liberating a financial system riddled with friction and exclusion.

But some environmentalists saw it as a contradiction with Tesla’s commitment to their cause. They echoed Treasury Secretary Janet Yellen recent comments that Bitcoin is “an extremely inefficient way of conducting transactions” that consumes a “staggering” amount of energy.

Yellen was right on both points. While she was not arguing against the technology, her observations reveal that nurturing this technology toward the democratization of finance also requires tackling the carbon footprint of so-called “crypto mining.” Innovation in the crypto space has already proven that we can do both.

Bitcoin has both the blessing and the curse of being first. Its methodology was set up to prove an idea, not necessarily be the best version of that idea. The famous Bitcoin white paper of 2008 introduced the concept of using cryptography to establish secure peer-to-peer transactions online without going through financial institutions. It established a digital token, called Bitcoin, as a reward for those who used computers and servers to validate and copy the network’s ledger of transactions. The more one verified and copied, the more Bitcoin one could obtain, and the “blockchain” of transactions would become stable and permanent. This process of generating Bitcoin was nicknamed “mining” and it relies on huge networks of energy-consuming hardware.

Since its inception, the Bitcoin ledger has been expanded for more than a decade by miners. This activity now consumes around 121.36 terawatt-hours per year according to researchers at the University of Cambridge’s Centre for Alternative Finance. They calculate that Bitcoin related electricity consumption today is greater than that of Argentina (121 TWh), the Netherlands (108.8 TWh), or the United Arab Emirates (113.20 TWh).

Blockchain innovation has expanded on the original concept, and scores of new ledgers have been developed to improve on the initial blueprint. In 2013, developers created the Ethereum ledger, which uses a token named Ether. This new network cut the average mining time to about 12 seconds, down from about 10 minutes for Bitcoin, and added more utility to the ledger beyond peer-to-peer transfers of coins.

Many crypto-enthusiasts will tell you that Ether has a wide range of projects running on it, like smart contracts and supply chain management solutions as well as moving money between digital wallets. In contrast to Bitcoin, Ether consumes 23 TWh annually on average, showing that greater efficiency from the blockchain with greater functionality is possible. But as Ether transactions increase, its energy consumption will likely increase as well.

Innovators are also visionaries, and they knew early on that if the cryptocurrency idea took off by using the mining method, there would eventually be serious environmental consequences. An online discussion started in 2011 among developers on how to solve this eventual problem. An idea emerged around a blockchain built on “pre-mined” cryptocurrencies.

Could a project be built in the laboratory quickly with a large volume of coins in a sort of “vault” and eliminate the wasteful process of mining? The creators could then distribute the coins through some issuance process just like a central bank. This inspired the creation of the XRP ledger in 2012 by the founders of Ripple, a San Francisco-based software company that uses the XRP token to process instant cross-border payments for global banks. XRP’s ledger is now open source, and the coin is one of the biggest cryptocurrencies in the world. Other developers are either copying the concept, or developing new tokens to add functionality to the XRP ledger to rival Ether.

The comparative carbon efficiency of pre-mined cryptocurrencies was dramatic. According to the XRP Ledger Project, XRP transactions consume 0.0008 percent of the energy needed for Bitcoin. This means applying a “pre-mining” innovation to blockchain can reduce the CO2 emissions for 20 million cryptocurrency transactions from 9.32 million metric tons (Bitcoin) to only 90 metric tons (XRP).

The line from Bitcoin to Ether to XRP and steadily greener cryptocurrencies is a similar line from coal to cleaner energy sources. The inauguration of each new coin brought forth valuable co-innovations in energy efficiency. Innovation created cryptocurrencies, and innovation is solving negative environmental impacts. Policymakers can expand the benefits of cryptocurrencies by creating an enabling environment for coin systems that deliver additional innovations in energy efficiency.


Dr. Michael K. Dorsey, who served on the National Advisory Committee of the U.S. Environmental Protection Agency during the Obama administration and served for 11 years on the Board of Directors of the Sierra Club, is currently chief strategy officer for Solair, a technology company that provides unique and proprietary renewable energy products and solutions for the emerging markets.

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