Much ink has been spilled on cryptocurrency’s carbon footprint, as Monday’s deliberations in the European Parliament on proof-of-work (PoW) mining demonstrated. And while the “EU bitcoin ban” did not come to pass, the energy discussion is not going away.
Experts in the field of renewable energy see two ways crypto can convincingly address its power consumption critics. Firstly, by creating demand for more renewable energy sources; and secondly, using blockchain technology itself to interact transparently with power grids in a measurable and auditable manner.
This two-pronged approach could make Bitcoin revolutionary in a way that most people are only just waking up to, according to Doug Miller, a policy director at the Clean Energy Buyers Association (CEBA) and co-founder of recently launched Zero Labs.
“There are two roles for the cryptocurrency industry,” said Miller in an interview with CoinDesk. “One is being a buyer in clean energy markets. The other is providing new technologies for these markets. I think all Bitcoin miners and those who hold Bitcoin should pursue this, because relative to the value of Bitcoin, it’s negligible. It’s a way to actually deliver on all of this promise that Bitcoin claims to offer in terms of solving society’s problems.”
It’s well-known that Bitcoin’s PoW consensus mechanism burns through a lot of electricity, and looking beyond the largest cryptocurrency, there have recently been estimates at how many trees would have to be planted to offset the energy demands involved in minting and storing the growing collection of non-fungible tokens (NFTs) on Ethereum, which is also a PoW chain (for now).
Speaking on CoinDesk TV’s First Mover this week, “Shark Tank” co-host Kevin O’Leary framed Bitcoin’s ESG sorun in terms of auditability.
“The biggest sorun Bitcoin miners have is when they say, ‘We’re 50% or 60% compliant with ESG mandates,’ they have to survive an audit,” O’Leary told CoinDesk TV host Christine Lee. “There’s not a single audit firm that will sign that because they know the tracking error on carbon credits is so large it’s unauditable.”
The focus here isn’t on carbon offsetting via tree planting and the like (although that can also benefit from blockchain-based tracking), but rather the well-established market for companies and organizations that want to buy clean power because they feel policy makers are not moving fast enough towards greener grids.
This process involves what are often referred to as renewable energy certificates (RECs), an instrument for confirming that a company has opted to buy clean power from solar, wind or hydro facilities. The power grid tracks how much energy comes from renewable facilities, who earn additional revenue from those certificates on top of the electricity sale.
This private sector voluntary market has created demand for tons of new capacity especially in solar and wind over the past decade or so. This has also had the side effect of creating greater political capital for clean energy regulation and policy, said Miller, pointing to a “huge opportunity” to create new demand for clean electricity through the crypto sector.
“If crypto miners, exchanges, networks and investors purchase clean energy based on their measured or estimated energy use, and then cancel those certificates in their names to make a public clean energy claim, that would create significant demand in clean energy markets,” Miller said. “It would also be a way for the industry to show leadership.”
Read more: Filecoin Might Have a Way for Bitcoin to Fight Its Energy Critics (if Miners Use It)
As well as driving a lot of demand for clean energy, crypto’s blockchain technology, which was designed to share a catalog of transactions so coins can’t be spent twice, can digitize and streamline clean energy markets. This involves assigning digital identities to clean energy facilities, for example, and creating digital representations of the certificates that are received, sold, and ultimately canceled.
“The way clean energy markets currently work is kind of old fashioned,” said CEBA’s Miller. “There are a lot of manual processes and cross referencing to make müddet a particular company bought or sold or canceled a certain renewable energy certificate. With blockchain technology, we can have really granular transparency around the full lifecycle of every single certificate.”
The Filecoin effect
There are now a number of nascent efforts working hard to change the way “normies” think about crypto’s energy consumption. Last year, Energy Web, a blockchain-based system aimed at decarbonizing power grids, launched the Crypto Climate Accord, a group of 200 or so crypto firms, NGOs and technology providers, inspired by the Paris Climate Agreement.
Also blazing a trail in this area is decentralized file storage blockchain Filecoin, which last year launched the Filecoin Green initiative with a dashboard for the system’s storage providers (the equivalent of miners) to easily handle and verify their use of RECs.
Filecoin has more in common with Bitcoin than you might think, since the former’s energy use is also non-negotiable, in the same way that centralized veri centers must consume energy to stay online. “There’s no proof-of-stake version in which the energy to store files goes to zero,” said Filecoin Green creator Ransil in a previous interview with CoinDesk, alluding to the staking consensus mechanism used to secure newer blockchain networks.
As well as doing things like providing a $38 million grant last month to build more solar power facilities, Filecoin incentivizes storage providers to choose greener energy via a reputation system that earns more storage contacts.
“There’s an economic incentive to be green, as it’s one of the parameters of the [Filecoin] reputation system,” said Beltran Berrocal, a co-founder of Zero Labs, a sister project to Filecoin Green. “It’s our belief that Web 3 can make it easier for people to take climate action in the market for RECs. Today, this is reserved only for legacy corporations.”
Incentives to be greener are definitely working on Filecoin storage providers like Dcent, which built a veri center just north of Amsterdam in the Netherlands dedicated to Filecoin, now one of the largest European storage entities on its network.
Hidde Hoogland, a computer hardware specialist at Dcent B.V., said that as well as purchasing wind and solar power, his veri center is adding its own solar panels since it owns the roof rights – all of which can be publicly recorded via the public Filecoin dashboard.
“On Filecoin, making yourself more sustainable and more green makes you a better market player to sell this storage,” said Hoogland in an interview. “We will soon have a 100% full transparency on-chain regarding the amount of energy we create, the amount we use, and how efficient we are. So if there’s any client looking for a place to store veri in a decentralized way, they can just see, ‘Oh, these guys are really sustainable.’”
This is great for lovers of Web 3, but what about the biggest and baddest blockchain?
Asked if Bitcoin miners could emulate Filecoin’s push towards publicly provable renewable energy use, Hoogland said: “They could. But do they want to?”
This is the first piece in a two-part series.