COP27, blockchain and a greener future for crypto

Marieke Flament, CEO, Near Foundation argues that the much maligned crypto secure has cleaned up its act and is now a force for good in the drive to mitigate climate change.

This month the 2022 United Nations Climate Change Conference (COP27) is underway in Cairo, turning the world’s attention to the global climate crisis and the solutions needed to address this urgent problem.  The crypto sector is having its own climate accountability debate, with leaders trying to not only find ways to reduce the industry’s environmental footprint- but to also help shape a better future for all.

It is time that crypto weighed in on the discussions at COP27 because the sector is making significant progress in winding down unsustainable practices and collectively tackling some of the world’s big environmental challenges head on.

One of the biggest advances is a fundamental shift in the way the industry generates crypto tokens. A major environmental win for us happened this year when Ethereum – the world’s second biggest blockchain – decided to follow in the footsteps of NEAR, Cardano, and others, and move to a ‘Proof-of-Stake’ mechanism to process transactions on the network.

Proof of Stake does not require mining. Instead, users can either become validators or delegators. Validators must stake their tokens to become a validator. Once they become part of the validator group, they are nominated at random by the network to verify transactions. Delegators, meanwhile, lend their tokens to validators and receive a reward in return. It is a decentralized, community first approach to keeping a network secure. On NEAR, this is all achieved by being carbon neutral.

This is opposite of the highly controversial ‘Proof of Work’ blockchains, which are secured and verified by virtual miners that compete to be the first to solve a math puzzle. The winner updates the blockchain with the latest verified transactions and is rewarded by the network with a set amount of crypto. These computational puzzles are incredibly energy intensive, and after each block is mined, all the energy expended by miners who did not solve the puzzle have effectively wasted energy.

Vitalik Buterin, a co-founder of the Ethereum blockchain, projects that the move away from Proof of Work means the network will use only one per cent of the energy consumed by crypto mining and he hopes that his bold move will inspire other leaders to follow the same path toward crypto sustainability.

Proof of Work has given the sector a bad rap for a long time – and for good reason. This is the original crypto consensus mechanism – first used by Bitcoin – which requires a large amount of processing power to run the network. The Digiconomist’s Bitcoin Energy Consumption Index estimates that one bitcoin transaction takes 1,449 kWh to complete, which is the equivalent of 50 days of power for the average US household. Bitcoin mining also uses the same amount of energy as the entire nation of Argentina.

When this method was first deployed, there was no consideration for the environment and sustainability was not something that was widely debated at the start of the crypto movement. 

When the discourse around mining’s notorious carbon footprint was amplified by environmentalists and scientists, some notable concessions were made to mitigate damage and improve sustainability. This included initiatives such as reusing heat from mining rigs to grow produce and the launch of eco-minded tokens such as BitGreen which reward environmentally friendly behaviours such as consuming sustainable products and IMPT, a blockchain-based carbon credit ecosystem that incentivises individuals and companies to offset their carbon footprint.

These efforts are commendable but more needs to be done to keep ecological destruction at bay. The old way of mining is yesterday’s approach – and Bitcoin and older tokens should end Proof of Work mechanisms and look towards a greener approach. The good news is that lessons have been learned, and a new crop of blockchains are emerging in the sector with a key focus on the environment. They are also looking at ways to leverage blockchain to back projects that are good for the planet too.

This includes the launch of the Open Forest Protocol (OFP) – an open platform that is used to transparently measure, verify and fund forestation projects with blockchain technology. Another great achievement is the success of SWEAT Economy – a fitness app that encourages people to ditch their cars and start walking more. The project has been a massive success, with a move-to-earn platform that rewards its users for making simple exercises like walking and running. 

While new cryptocurrencies are developing eco-friendly tokens, reducing intensive mining practices and enabling digital payments, the old world of finance is still mining copper, zinc and nickel to mint physical coins. According to the American Council on Science and Health, mining and transporting pennies alone has produced 48,000 tonnes of carbon dioxide emission in America – a very high number when you consider that one gallon of diesel fuel produces 23.8  pounds of carbon dioxide fuel when burned. 

Printing money is also destructive – how many trees do we need to cut down? And let’s not forget the landfills brimming with millions of discarded plastic credit cards.

Like our sector, traditional finance has its own set of ecological problems to address. We need to do more- and there’s no time to waste if we want to protect the planet. Collective action across industry, governments and regulators is necessary to make progress in this race to save the environment – which is why crypto should also be part of the discussions at COP27.