This week, we’re celebrating Earth Day 2022, and if you’re new to Stacks, this may be the first time you’re hearing the words Stacks and sustainability in the same sentence. You may be more familiar with the fact that HeyLayer enables minting of NFTs on the Stacks blockchain, and that we’ve chosen to do so because Stacks anchors to Bitcoin, which is the most secure blockchain. And maybe you’ve even heard rumors that Bitcoin is “bad for the environment.” But as you no doubt know…rumors aren’t always true!
For people who are already set against blockchain and cryptocurrency, or perhaps on the fence about it, the argument that cryptocurrencies like Bitcoin are “bad for the environment” provides justification or an extra straw on the camel’s back that pushes people over the fence. It’s an argument that asserts itself on a moral high-ground by invoking the climate crisis, but it’s an argument that stands on shaky ground at best.
So what are people saying? To simplify, they are saying that Bitcoin’s energy consumption is too high, and that this has a negative impact on the environment. But that’s too simplistic a view. Nic Carter wrote a great article for HBR that breaks down some of the key arguments. It’s definitely worth a read, but if you don’t have time right now, don’t worry – we’ll summarize the four key issues he raises for you here:
1. Energy consumption ≠ carbon emissions
We’ll talk about energy consumption more in a minute, but for now, let’s take this reminder that energy consumed by Bitcoin doesn’t directly translate to carbon emissions. It can be easy enough to estimate the amount of energy consumed by Bitcoin, but much harder to calculate the actual amount of carbon emitted. To fully understand the climate impact, we need to better understand its energy mix, but we don’t have enough information from miners (we’ll come back to this) about the energy sources they use. A 2020 report estimated that 39% of Bitcoin’s energy consumption was carbon neutral (and a 2019 report suggested this was 73%)! Hydro power is a large source of energy in some major global mining hubs. And that brings us to one of the advantages of Bitcoin.
2. Bitcoin can use energy that other industries can’t
Let’s step back for a minute. What’s a miner? Well, a miner is a computer that mines. Yeah, super helpful….We’re not talking Snow White and the Seven Dwarves kind of mining. Miners “mine” for cryptocurrency – the computer has to solve a complex puzzle (a “hash”), which results in the creation of new Bitcoin. The first miner to solve the hash gets to verify the newest block of transactions (each block of transactions will then get added to a chain of blocks, hence, blockchain). The miner will get paid a small fee in cryptocurrency for its successful work. The more miners there are, the harder the puzzles get, and this enables greater security of the blockchain. This mechanism is called “Proof of Work” and it’s used by blockchains like Bitcoin. (See Kent, 2022)
Now back to the concern around energy consumption. To operate, miners are powered by electricity, and the more miners/greater the complexity of the hashes, the more energy is consumed. However, we mentioned before that this does not necessarily have a direct correlation to carbon emissions. And an advantage of Bitcoin is that it can be mined anywhere, and miners can rely on power sources that are inaccessible for other industries. Take hydro power in China as an example, where production capacity surpasses demand. Miners are able to use this energy that would otherwise be too difficult or costly to store and transport for use elsewhere!
3. Mining Bitcoin consumes more energy than transactions
Now that we have a better understanding of what mining is, it’s a great time to highlight that most of the energy consumed by Bitcoin is actually consumed when mining Bitcoins, not when validating transactions. So the argument that Bitcoin has a high energy cost per transaction, or that the energy costs will continue to grow at a fast pace, is misleading.
4. Bitcoin’s energy consumption/footprint unlikely to continue growing exponentially
Like other industries, Bitcoin is diversifying its power sources and reducing its reliance on carbon. Also, while miners are incentivized to mine, the Bitcoin protocol has a check on the revenue that miners can receive in the long run from their transaction fees (it halves every 4 years). So the growth of mining operations (and the associated levels of energy consumption) is not likely to continue indefinitely at the fast rates we’ve been seeing.
The Cambridge Center for Alternative Finance has reported that Bitcoin currently consumes around 0.55% (read, less than one percent) of global electricity production. Yes, Bitcoin consumes energy, and yes, this may result in carbon emissions (the amount of which, as explained, may be difficult to calculate). But sustainable development is not about stopping development altogether. According to the 1987 Bruntland Commission Report, “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Across ALL industries, we need to be conscious of our impact (including carbon footprint), take steps to become carbon neutral/negative, and so innovate in ways that contribute to a sustainable future. So when people start raising their eyebrows, and their voices, about Bitcoin’s energy consumption and Bitcoin having a detrimental impact on the environment, it begs the question – how do we prioritize energy consumption? Of course we should consider the costs, but to be fair, we need to give due consideration to the benefits of blockchain, cryptocurrency, and Bitcoin and decide if the benefits outweigh!
The Secret of Stacks
One of the reasons HeyLayer is so excited to operate on the Stacks blockchain is that it takes a sustainable approach by implementing a consensus mechanism called Proof of Transfer (PoX). This means that Stacks uses the proof of Work cryptocurrency of an established blockchain (specifically, Bitcoin) to secure a new blockchain. Bitcoin is the anchor, and all Stacks transactions settle on Bitcoin. An advantage of PoX is not just that it enables Stacks to anchor to the most secure blockchain while deploying Stacks smart contract capabilities (that what lets you mint NFTs through HeyLayer), but it means that Stacks reuses the energy that has already been produced for Bitcoin and creates value from energy that has already been spent! (Stacks.org)
Web3 (the user-owned internet), blockchain, cryptocurrency, NFTs…all these concepts and tools can seem overwhelming at first, and it’s a space that is evolving ever so quickly! How exciting though! It means we can shape the industry, promote sustainability as an imperative, and develop tools that drive sustainability initiatives forward. Whether its innovating consensus mechanisms like Stacks did with PoX or experimenting with NFTs for carbon offsets, the industry is still in the early days and we have yet to step into its full potential. At HeyLayer, we envision a humanity-centered internet that creates real-world good. We’re here to help you navigate the transition to Web3 and start thinking about how we can make the industry more sustainable and how we can use these tools to do real good in the real world. Follow us for more content and to join the conversation!
Contributing writer: Klem Bohdanowicz
Carter, Nic. “How Much Energy Does Bitcoin Actually Consume?” Harvard Business Review, May 5, 2021
Kent, Charlotte. “Can you be an NFT Artist and Environmentalist?” Wired, Feb. 17 2022 https://www.wired.com/story/nfts-art-environment-cryptocurrency-climate-change/.
The World Counts. “Tons of CO2 emitted into the atmosphere”, https://www.theworldcounts.com/challenges/climate-change/global-warming/global-co2-emissions/story.
Tully, Shawn. “Offsetting Bitcoin’s carbon footprint would require planting 300 million new trees.” Forbes, Nov. 6 2021, https://fortune.com/2021/11/06/offsetting-bitcoins-carbon-footprint-would-require-planting-300-million-new-trees/.