Getty
Ever since cryptoassets first burst into the mainstream financial conversation there has been an ongoing debate around just how much power and energy are consumed by crypto transactions. Statistics and anecdotes that have been used include the reality that bitcoin consumes more power than some countries, and that mining bitcoin is the equivalent of adding an entire new city onto some specific power grids. Crypto mining does, absolutely, consume significant amounts of power and energy, but that misses the broader and more important point.
Every large industry, including incumbent financial services and the multitude of streaming content providers so enjoyed worldwide, also consume large amounts of electricity and have done so for decades. This is not presented to serve as an excuse, nor to try and equivocate industries that are vastly different from one another. Rather, it is to highlight the simple reality that power consumption and usage is a fact that any and every industry must be able to justify. In other words the question must be answered; is the power consumed and utilized by cryptoassets worth it?
This opens the door to more comprehensive questions that should be addressed; what are the energy issues that investors and policymakers should keep mind as the energy conversations around crypto continue to evolve?
Crypto can encourage green innovation. Starting with perhaps the most impactful point of all, the growing utilization and integration of cryptoassets throughout the economy at large is leading to the understanding that cryptoassets can help spur green energy innovations. This dovetails with the increasing policy attention being paid to renewable and green energy resources, including solar, wind, and hydro-electric sources, but the conversation does not end there.
Even now, as solutions connected to green renewable energy still seem to be in the pipeline versus ready for mass market adoption, crypto miners and operators are actively working with energy producers to find market based solutions. For example, there are numerous examples of crypto organizations working with oil and natural gas producers to make use of excess natural gas or other resources that would otherwise go to waste.
As paradoxical as it might seem at first, the increasing power used by the crypto industry might actually pave the way for both more efficient and greener solutions over time.
Crypto is already green. One statistic that often goes overlooked in what can become very intense debates around the merits of cryptoassets is the reality that – to a significant degree – crypto mining and other activities already leverage green and renewable energy resources. Depending on the specific study referenced the actual percentage of power that comes from green sources has been cited anywhere between 25% – 60%, but the message is the same. Crypto operators, when viewed through this lens, might actually be greener than the norm.
According to research published by the U.S. Energy Information Administration, on average, 12.1% of energy consumed and 20.1% of electricity generated is derived from renewable sources. Stated a different way, and verifiable by publicly available information, crypto mining and operators can use more renewably sourced energy than the average organization, at least in the U.S.
The crypto market is, of course, a global one so it would be difficult to extrapolate U.S. trends to the global stage, but it is encouraging to see how wholeheartedly this sector has seemingly embraced renewable energy sources.
Proof-of-Stake is on the rise. For all of the passionate conversation around the subject of crypto energy consumption, it is also important to remember that these comments only refer (in most cases), to the power used by bitcoin miners. Bitcoin, as it commonly known, leverages the Proof-of-Work (PoW) consensus protocol to verify blocks and maintain the integrity of the existing blockchain. These debates ignore the rapidly growing and diverse array of products and services that do not operate under the Proof-of-Work protocol, but rather utilize the Proof-of-Stake (PoS) consensus methodology.
Depending on the specific study referenced the transition from PoW to PoS will reduce the power consumption around certain blockchain and crypto products by up to 99%, which clearly will dramatically change the tone of current power related conversations. With many of the more recent cryptoasset applications – decentralized finance and non-fungible tokens to name just two – running on the Ethereum blockchain, and with the Ethereum community poised to move from PoW to PoS, there is a dramatic shift potentially coming for the space.
As with everything connected to blockchain and cryptoassets the seemingly simple headlines that dominate the conversation can overlook the nuanced layers that should be analyzed. Blockchain and cryptoassets do consumer rather large amounts of energy; that is beyond dispute. Where the conversation should – and increasingly is – focus on are 1) the rationale behind this power usage, and 2) how this energy is sourced. Crypto does use power, as does every business enterprise, and the value delivered by crypto applications far exceeds the cost they incur.
Author
Administraroot
Related Posts
