The original Bitcoin white paper was released on October 31, 2008. While most people who were aware of the paper considered it an intellectual curiosity for the most part, few could predict that just a few years later, the underlying technology would become one of the greatest digital innovations of recent financial times.
The concept of “proof-of-work” to verify transactions as used by the Bitcoin network was the underlying method which gave birth to a new generation monetary systems and decentralized finances. No doubt this likely became bigger and more important than its creator had ever anticipated.
As with many remarkable inventions or innovations, there are often unintended negative consequences. In the case of Bitcoin, this is primarily related to the network’s growth in energy consumption and related contribution to greenhouse gasses since PoW is, by its very design, highly energy consuming.
Back in 2008, the Bitcoin energy concept was likely quite simple; to utilize idle CPU power from personal computers to run the network with minimal incremental energy draw. However, as “miners” began to appreciate the potential profitability of the process, so too began the process of developing more powerful mining systems, and with the adoption of Application Specific Integrated Circuit (ASIC) technology for mining, the network truly began to grow – and so did power consumption.
As of April 2021, it is estimated that the Bitcoin network had an annualized consumption of some 98 terawatt-hours of electricity per year – or the equivalent of countries like the Netherlands. The network also had an annualized carbon footprint of 46.5 metric tonnes of CO2 (equivalent to that of Finland). Granted, mining processors are becoming more efficient, but much of that efficiency is offset by the increase in network difficulty and growth in number of miners overall (a large proportion being powered by coal-sourced electricity). However, the overall energy consumption is not as critical to the environment as the source of energy is. As of 2021, most of the mining facilities are still located in China (estimates as high as 70-75%), which rely heavily on coal-based power either directly, or through load balancing.
Sustainability and the establishment of a basic ethical framework for the Bitcoin network is truly becoming an issue of concern and while Bitcoin has become exceedingly popular and more mainstream, the majority of financial institutions are still reluctant to invest due to concerns over environmental, sustainability and governance (ESG) concerns.Yet the power and value of blockchain technology is undeniable, and there is little chance that blockchain’s energy consumption will decrease in the short or medium term.
Over the years, there has been a fair amount written on how blockchain technology can be used as a catalyst for climate action rather than as a contributor to climate change. This includes promoting blockchain as an incentive point for green technology – the belief is that miners are easily interruptible energy consumers and as such can take up non-peak demand from green energy sources like wind and solar, thereby creating the economies of scale needed to make these green energy sources economically viable. Other justifications focus on blockchain’s ability to support “green finance” and other green transactions.
However, while these are interesting and valid arguments, they are essentially based on an approach of carbon offsets rather than carbon substitution as they do not address the underlying issue of electricity from carbon-fueled sources which powers a large proportion of Bitcoin mining. There is no incentive to move away from carbon-based mining nor is there any way to identify bitcoin mined with carbon-based power versus renewable energy. As such, under these initiatives alone, there would not likely be a decrease in Bitcoin’s overall carbon footprint.
So the problem remains of how to deal with these ESG concerns in an inherently conservative ideology (the concept of a safe, secure, private, decentralized and distributed system) when dealing with what is essentially a non-differentiated commodity, as well as provide users of bitcoin the ability to truly choose a greener option.
For solutions we can look at what has been accomplished in other industries under similar circumstances and equally difficult conditions and use these lessons learned for the Bitcoin network.
As an example, in the 1980’s the world markets were made aware of what came to be known as “blood diamonds” or “conflict diamonds” – diamonds originating from conflict regions of the world, proceeds of which were used to finance conflict situations. As diamonds (particularly rough diamonds) are a generally undifferentiated commodity, it was difficult to separate such diamonds from diamonds of legitimate origin.
The eventual decline of conflict diamonds occurred primarily because;
- Awareness of conflict diamonds made them undesirable (i.e., market forces)
- Laws made them illegal to purchase/sell which was internationally monitored
- A basic certification process put into place intended on reducing circulation of blood diamonds (the Kimberley Process) coupled with technology to trace origin of diamonds (e.g., X-ray diffraction “fingerprinting” of the product)
Although the approach was flawed on many levels (e.g., hard to enforce), the approach of combining moral principles and establishment of legal foundations for the industry along with methods of compliance of monitoring through technology was sound, and can be applied to some extent to a greener and more ethical Bitcoin network.
Bitcoin is developing a negative reputation in the eyes of the public for being environmentally non-sustainable. The market is demanding greener blockchain operations. Bitcoin Low-Carbon will provide digital proof that the coin was produced within a consensus-based sustainable framework.
Bitcoin Low-Carbon will be the same bitcoin, but minted on an environmentally sustainable chain.
We believe that only small changes need to be implemented to the current Bitcoin chain to achieve this goal. Under the proposed system, the current Bitcoin Core chain would remain an integral part of the Bitcoin low-carbon chain. We would expect this would result in fewer miners using carbon-based energy, along with a move to greener, certificate-based miners migrating to Bitcoin Low-Carbon over time.