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The Future of Climate Policies for Cryptocurrency Companies

The Future of Climate Policies for Cryptocurrency Companies

Innovation often comes in the form of technology, and new technologies can spearhead massive development for communities and throughout the world. From niche inventions to industrial revolutions, this has been the theme of human development throughout history.

Alongside this theme, however, looms another, less positive one: climate change. As our technologies continue to advance, we are consuming more power than ever before—and that consumption will not go unchecked. Essentially, that check can come in one of two forms, a response from either our own policies or the planet itself, and one blossoming technology that has been in the hot seat recently is cryptocurrency. But, how exactly is crypto harmful to the environment, and what steps can be taken to address the issue? Let’s take a look.

The cost of crypto

For many, it can be tough to understand how virtual currency can take a toll on the environment at all. It isn’t “real” after all, right? People may have heard of “mining” when it comes to Bitcoin, but this isn’t actual mining as in coal and precious mineral mines, so where’s the harm? When it comes to the environmental consequences, the proof is in the pudding—or, rather, it’s in the proof of work.

Traditional cryptocurrency models, like Bitcoin, operate on a “proof of work” concept. The idea is that every transaction is documented on the blockchain (you can think of it as a ledger), and millions of computers all around the world are constantly fact-checking every record that goes on that chain. While this makes the blockchain incredibly secure, it also takes a very large amount of computational power to sustain. As the popularity and presence of crypto grows, this computational power begins to take a toll.

Additionally, the calculations that need to be performed in order to secure the blockchain must be done quickly and are very demanding, meaning that new and faster technology is developed and adopted constantly. The result is that modern hardware becomes obsolete very quickly, leading to high levels of hazardous waste as crypto companies toss out their old machines for updated ones. As companies and even countries all over the world continue to explore and adopt crypto, it isn’t tough to imagine how quickly this can add up.

Federal regulations

One response to this rapid increase in energy consumption and waste production is through federal regulations, some of which are already on the way. In a statement from the White House, it was made clear that the US Government considers it a priority to meaningfully get behind the crypto explosion for a variety of reasons from global competition and financial stability to, of course, the climate risks.

Regulations mitigating climate damage will likely take two forms: transparency requirements and carbon taxes. As mentioned, hardware containing hazardous materials quickly becomes obsolete, and so the former of these two types of regulations can help mitigate the amount of waste companies create in their efforts to stay up to date in the technology. The latter regulation, on the other hand, can serve to mitigate the sheer consumption of energy necessary to mine on a large scale. Countries like China have already banned Bitcoin and crypto due to harmful environmental developments being observed, and similar situations in the US are unfolding right in front of us.

For better or for worse, however, US policy is slow, meaning that these are likely regulations we will see down the line, but not any that will affect crypto or crypto companies in the near future. The climate consequences aren’t waiting for congress, however, so what is there to do?

Alternative solutions

Fortunately, as a panel of experts debate here, not all crypto is created or powered equally. One thing to point out is what exactly energy consumption looks like. It is undeniable that proof-of-work crypto models utilize very large amounts of energy, but that isn’t necessarily an issue at face value. A popular proposal is to utilize “stranded” or otherwise wasted energy that already exists. One of the least sustainable points of our rapid energy consumption is that a lot of the energy that we already produce is never used, and simply goes to waste. It takes energy to produce energy, so being inefficient in its allocation is a clean-cut recipe for climate consequences.

Using this unused energy to power crypto-mining machines would, then, solve two problems: the unsustainable energy consumption of mining, and the unsustainable practice of letting energy go to waste. This would, in theory, make crypto as green as could be. There are challenges to this solution, of course, one being that much of this stranded or wasted energy is not immediately accessible to be used for crypto mining, and another being the infrastructure and political collaboration necessary to re-allocate excess resources.

Another solution to keep in mind is that not all crypto requires proof-of-work models. Cryptocurrencies that have come out in the last few years have avoided this model altogether, and other popular models such as proof-of-stake, proof-of-burn, and proof-of-capacity are all far less computationally and resource intensive. Bitcoin and Ethereum are both proof-of-work currencies and continue to dominate the market, but this might not always be the case. The simplest and quickest solution to environmental concerns might be to adopt a greener crypto option that users can get behind.

Whatever the ultimate solution ends up being, it seems clear that climate-protection policy is an important discussion surrounding crypto and crypto companies, and while congress is sure to have a proposal at some point in time, the responsibility falls on the companies and individuals themselves to make responsible choices.

 

Living Pono is dedicated to communicating business management concepts with Hawaiian values. Founded by Kevin May,  an established and successful leader and mentor, Living Pono is your destination to learn about how to live your life righteously and how that can have positive effects in your career. If you have any questions, please leave a comment below or contact us here. Also, join our mailing list below, so you can be alerted when a new article is released.

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