A Look Under The Hood At The Sustainability Of Cryptocurrencies

This article is written by Victoria Kent, Investment Specialist at Elevate Super

What has Bitcoin got to do with the environment?

If you are one of the 62.5 million people that follow Elon Musk on Twitter, you would know that he likes to tweet about crypto currencies, often causing their prices to soar.

Back in February of this year, Tesla revealed it had bought $1.5bn of bitcoin and would accept it as a payment method. However two months later, they reversed their position with Musk tweeting that cryptocurrency could “not come at a great cost to the environment”.

This got many people asking: what has Bitcoin, a crypto asset, got to do with the environment? How can one digital currency have a carbon footprint large enough to make Tesla remove it as a payment method?

Energy efficiency of inherent computational process

In a nutshell, Bitcoin’s carbon intensity stems from how it’s calculated. Bitcoin relies on a ‘proof of work’ (PoW) system that involves a huge amount of calculations (and, thus, processing power) to produce a single token. You may have heard this described as “mining”.

Other cryptocurrencies use a ‘proof of storage’ or ‘proof of stake’ (PoS) system instead, which consume far less energy. Block lattice is an example of another energy-efficient technology, which doesn’t require mining.

Even Elon Musk’s favourite Dogecoin is more energy efficient than a pure PoW protocol such as Bitcoin’s SHA-256 mining algorithm, but not as energy efficient as a proof of storage protocol or similar.

Volume and price matter

One cannot ignore the importance of market dynamics when it comes to the energy consumption of cryptocurrencies. Many, much smaller cryptocurrencies, naturally have a far lower carbon footprint, since they incur far fewer daily transactions compared to Bitcoin.

Market price slides and crashes can also affect energy consumption, as it can lead to miners slowing down or turning off their devices – it’s not profitable to run the machines at certain prices.

When it comes to the sustainability of cryptocurrencies, energy efficiency is just one part of the equation. It’s also important to consider whether the currency itself supports environmental initiatives, is involved in carbon offsetting or reductions, or other environmentally-conscious endeavours.

Examples of ‘greener’ cryptocurrencies

SolarCoin

A novel approach to cryptocurrency, they create 1 SolarCoin for every megawatt hour generated from solar technology.

BitGreen:

Founded in response to the environmental impact of Bitcoin, it’s a community-driven initiative using a low-energy proof of stake algorithm. Linked to BitGreen Foundation ¬– a non-profit overseeing the maintenance of the BitGreen project.

Looking beyond energy efficiency, how else can cryptocurrencies demonstrate sustainability? Let’s explore this via the technology behind crypto – blockchain.

The power of blockchain

Blockchain technology has tremendous potential to tackle the Sustainable Development Goals (SDG). It can help:

• support financial inclusion
• improve aid effectiveness
• power supply chain transparency to enable consumers to consume and produce responsibly, and
• provide legal identity for those without it.

The ability for blockchain to act as an immutable ledger (one that can’t be changed) is beneficial to those who can’t access facilities that register property ownership, or where those facilities have been destroyed in a natural disaster.

In a crisis or extreme poverty situation, moving away from danger and accessing aid, healthcare, and legal protection is extremely difficult without proof of identity.

Blockchain can assist ID-less people such as refugees or migrants in transit, and make receiving aid more efficient and dignified. It creates a universal and irrefutable digital identity, enabling people access to essential and potentially life-saving services around the world.

Despite the potential for blockchain to be used for good, it is the most marginalized, poor, rural populations, and the displaced who are the least likely to have access to reliable internet connections.

Read about the many blockchain-powered SDG projects here.

About Elevate Super

Elevate Super is a retail super fund, powered by successful fintech AtlasTrend. AtlasTrend was created in 2015 to build a new investment service to help our customers learn and invest with purpose in long term world trends. At Elevate Super, we believe you shouldn’t have to give up competitive financial returns to do good.

We assess and measure investments based on their long-term growth fundamentals plus positive contribution to the UN Sustainable Development Goals (SDGs) – a global blueprint for balancing our economic, social and environmental needs.

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