Green cryptocurrency - one that doesn't burn the planet by whirring computers - is here. What do we do with ReFi (regenerative finance)?
We’re always interested in tech that might serve communities, rather than despoil and exploit them, so we’ve kept track of crypto, blockchain and DAO’s over these years.
Each of them in their way promises to change the way we value our resources amongst ourselves - and make available systems whose “coins” make different kind of economies and trading possible, without the oversight of a central government or state.
But as well as their potential for scams and speculation, as a negative aspect, the great charge against crypto as a whole is its energy consumption - the constant computation required to make it viable and keep it operating.
From a rather unexpected source - a blog on Huel, the energy drink makers - we have found an excellently concise account of the range of green alternatives to the standard “Bitcoin” energy burn:
There are three common ways in which computers are selected to perform tasks on the blockchain. Proof of Work (PoW), Proof of Stake (PoS), and Proof of History (PoH). This is where the sustainability question rings loudest. Essentially, Proof of Work is the worst of the bunch.
The way Proof of Work works is that computers all compete with each other to solve a very complex cryptography equation first (not dissimilar to the start of Who Wants To Be A Millionaire where the fastest person gets to play for the prize). It’s incredibly inefficient, as thousands of computers all work at full pace with only one computer getting anything from it (processing a transaction or perhaps mining some cryptocurrency). The rest is literally wasted energy.
A less wasteful way
Bitcoin uses Proof of Work, which is why it is often slated as bad for the environment. Even more so given Bitcoin is, at the time of writing, roughly fifteen times bigger by market capital than the second biggest cryptocoin – Ethereum.
Proof of Stake meanwhile, is considered far less wasteful. The way proof of stake works, is simply whoever has a stake in Ethereum (a stake is where you essentially isolate part of your funds in Ethereum for a temporary period of time, like a deposit) is entered into a draw, and the blockchain randomly selects who gets to process the transaction. The more you stake, the higher the probability you’re chosen. This means only one computer has to then expend energy doing the work.
Ethereum actually moved from Proof of Work to Proof of Stake with the Ethereum 2.0 merge (which you can think of as sort of like a big software upgrade that Ethereum completed in September 2022).
Proof of History is also better than Proof of Work, and probably better than Proof of Stake too (though less thorough). Solana is the most popular blockchain that uses it. The way Proof of History works is that nobody has to do anything. It instead uses a series of timestamps so that everyone knows what’s happening, and these are generally just unanimously approved by everyone on the blockchain. If someone’s timestamp is off by a microsecond it’ll be invalidated. Quick, easy, and low-energy.
The reason we’re going on about consensus mechanisms is that given how bad things like proof of work are, sustainability efforts in the industry are mostly concerned with using responsible consensus mechanisms. So, like the endorphins after a workout, let’s get into the coins doing good.
Crypto going green
As mentioned, considering the consensus any coin uses is a good start when considering sustainable cryptocurrency options, but some blockchains, cryptocurrencies and crypto-tokens go further. NANO is an example of a blockchain with a unique consensus mechanism that is very low in energy. It also doesn't use transaction fees and focuses on being very scalable.
Other sustainability efforts are concerned with offsetting – Algorand is a blockchain that sets examples in this realm. Algorand has engineered itself to make sure that the carbon footprint of every transaction is offset automatically, without any action needed on the user's part. This is done by using part of the transaction fee to buy carbon credits through ClimateTrade.
Tezos is another established blockchain that uses a slightly atypical consensus mechanism. If you want something even more sustainable than Ethereum, this might be the answer. According to their website, the network has an average energy footprint of just 17 global citizens. The trading volume is around $50 million, so we can assume far more than 17 people use it.
New projects are also cropping up all the time. IMPT is the latest and possibly most eco-friendly of all. It is a crypto token which allows you to purchase carbon credits that their technology packages as an NFT. Regardless of your opinion of NFTs, the benefit here is that it makes the carbon credit easy to trade and very secure.
There are a lot of scams around carbon credits, and IMPT is a viable solution to those scams. It’s very new, so it’s worth keeping some caution in case things go south, but the idea, and so far the execution, are very promising.
While Bitcoin is still considerably more used than the more sustainable alternatives, all that can change. Societal pressures could also force Bitcoin to evolve. Either way, there’s some cause for optimism.
More here. And see this recent report from CoinCentral, which gathers up the preceding and gives us an introduction into ReFi - Regenerative Finance:
We’re looking at something very much within reach—how crypto can
incentivize the reduction of the global carbon footprint, and
regenerate natural resources.
And no, this isn’t another one of those “slap a blockchain tag on it and raise money” ideas—the actual execution here is fascinating.
Take these examples:
StepN, a web3 lifestyle app, has managed to shrink its users’ carbon footprint by nearly 6 million tonnes by incentivizing them to … walk more.
Gitcoin, the leading crypto-based, open source bounty platform, has created a channel for individuals and organizations to deploy nearly $65M USD in over 2,800 web3 for public goods projects via quadratic funding.
KlimaDAO has rallied its community to absorb nearly 18M tonnes of carbon credits, equivalent to taking 3.8 million cars off the road for a year.
Founded in 2017, Gitcoin was a pioneer in the space, with the founder Kevin Owocki quite literally writing the book on ReFi: Greenpilled: How Crypto Can Regenerate the World.
There are over 100 ReFi companies today, and the pace continues to grow. Many notable venture capital institutions such as a16z and USV are actively investing in the category; new funds like Allegory are focused exclusively on the intersection of crypto and climate.