When Satoshi Nakamoto launched Bitcoin, they may not have considered the impact that the project’s success would have on the global power grid. Bitcoin consumes an absurd amount of energy, diverting fossil fuels into the costly proof-of-work algorithm at the heart of the blockchain. Major opponents of blockchain technology often focus on wastefulness as one of the key tenets of their argument. Long-term cryptocurrency success may well depend on reducing or eliminating dependence on energy-intensive operations – including proof-of-work.
In the interim, some altcoins emerged that could give cryptocurrency a greener reputation. Focusing on the financial aspect of the industry, these projects have brought tokenization to carbon offset credits. By verifying these government-standard documents, projects like Toucan Protocol then mint an appropriate amount of their currency to represent the offsets. This allows users to buy and trade carbon offsets – much the same as they would any other currency.
Cryptocurrency’s Power Problem
At the core of the issue is the proof-of-work algorithm introduced alongside Bitcoin’s launch. To produce Bitcoin, a miner must solve arbitrary, complex algorithms – and the more computational power thrown at the problem, the greater potential gain in profits. That power comes at the cost of energy, creating a direct energy-to-profit ratio for mining. This isn’t even taking into account the amount of waste generated by running electrical components at max capacity.
Some locations that historically held low energy costs saw an influx of miners looking to capitalize. Some fought back, charging higher prices to cryptocurrency miners. While other cryptocurrencies have moved to more energy-efficient algorithms, including proof-of-stake, there is little appetite to change Bitcoin’s basis.
Green Cryptocurrencies & Carbon Offset Tokens
Instead, green cryptocurrencies may help to offset the damage done by Bitcoin. Vaunted cryptocurrency investor and minor celebrity Mark Cuban recently announced that he funnels carbon offset credits into the Toucan Protocol. Working alongside Toucan, the KlimaDAO’s mission is to purchase as many of these Base Carbon Tonnes, or BCT tokens, to drive the price higher. They believe that a higher price-per-credit will drive companies to invest in offset technology.
Other projects, sensing an opportunity, have entered the carbon offset tokenization sector – some even integrating NFT technology to account for specific carbon offset credits as they enter the blockchain. While admirable, these projects do not solve the heart of the issue – Bitcoin remains the most popular currency, and there is little drive to shift the progenitor blockchain away from a proof-of-work algorithm.