Cryptocurrencies aren’t usually associated with eco-friendliness. Indeed, the emissions output of bitcoin, which rivals those of some countries and even threatens to impede climate action, has done much to tarnish the image of these cutting-edge forms of finance.
In light of this, an alliance of research groups and private firms this week announced they are pooling resources with the intention of completely decarbonizing all cryptocurrencies by 2040.
The bodies that formulated the proposal, known as the Crypto Climate Accord, say the transparency that is by definition built into cryptocurrencies makes them ideal tools to bring trust to decarbonization efforts. The accord, in turn, urges cryptocurrency communities to work collaboratively to make the cryptocurrency industry “100% renewable.”
“Inspired by the Paris Climate Agreement,” the groups said in a joint statement, “the accord brings together the crypto and financial technology (fintech) industry to build a sustainable future for global finance.”
The groups hope the effort, if successful, will attract new customers to use crypto, and secure the digital currencies’ place in the world’s mainstream financial markets.
The initiative, supported by the United Nations Framework Convention on Climate Change, is led by non-profit energy research bodies Energy Web and the Rocky Mountain Institute, as well as the Alliance for Innovative Regulation, which campaigns for the modernization of financial regulations. Signatories to the accord range from digital asset investment firm Coinshares to French utility company Engie.
Jules Kortenhorst, CEO of the Rocky Mountain Institute, told Forbes.com why the accord is important.
“The role of financial services in driving transformative change to a zero-emissions, 100% renewable energy future has reached a critical point,” Kortenhorst said. “But one organization alone cannot impact the level of change required—it takes an industry-wide coalition.”
“We have reached a turning point, with crypto gaining a permanent foothold in global finance,” he continued. “Now crypto is also taking a leading role to build a more sustainable and scalable future for global finance in the net-zero economy.”
Walter Kok, CEO of Energy Web, insisted that all the necessary ingredients to decarbonize cryptocurrency already exist: what’s missing is collective action.
“We have the technical solutions required to decarbonize blockchains,” Kok said. “What the industry doesn’t yet have—and needs—is a concerted effort. The accord marries the right tools and public structure needed to achieve our goals, and we hope recognition from our global supporters inspires others to join in shaping our renewable energy future.”
One Of These Things Is Not Like The Others
Bitcoin mining has resulted in millions of tons of carbon emissions thanks to its “proof of work” consensus mechanism for validating transactions and mining new tokens. This has caused bitcoin miners to effectively go to war over dwindling rewards by deploying ever more power-hungry circuits to do their number crunching. Chinese researchers this week revealed that by 2024, bitcoin mining could be responsible for 130 million tons of carbon emissions annually—about the same as the Czech Republic.
But not every cryptocurrency is based on the proof-of-work mechanism: proof-of-stake mechanisms, for example, are based on ownership of coins rather than computational energy, meaning they can be far more energy efficient. The accord proposes to encourage development of and investment in cryptocurrencies based on these mechanisms. It is this mechanism that the second most popular cryptocurrency, Ethereum, is moving to, in a bid to drastically cut its emissions.
Even in the case of proof-of-work mechanisms like bitcoin, the accord says far more can be done to lower emissions, beginning with an effort to “leverage the transparency of blockchains themselves to measure just how much entire networks are powered by renewables.” This can help facilitate the shifting of such systems onto low or zero carbon energy supplies.
The accord stresses that the plan is not to water down existing cryptocurrencies or create “green” versus “non-green” currencies. “We want cryptocurrencies like BTC [bitcoin] and ETH [Ethereum] to remain 100% fungible,” the accord states. In other words, the fact that cryptocurrency tokens maintain the same value, regardless of who owns them or what their history is, is one of their key benefits.
Nigel Topping, a long-time campaigner for zero-carbon business initiatives in the U.K. and Britain’s high-level champion for climate action at the United Nations’ COP26 summit this year, said of the accord: “In addition to urgently eliminating future emissions, this industry is uniquely placed to address its historical emissions debt. The very nature of blockchains enables historical system-wide transparency, making crypto’s emissions debt a ripe target for carbon dioxide removal solutions.”
“This is a unique chance to publicly clean up the past, reject future emissions, and push the boundaries of climate leadership,” he added.