Energy Efficient and Environmentally Friendly Cryptocurrencies

Recently there’s been quite a lot of controversy regarding bitcoin’s energy consumption and its wider environmental impact.

The under-informed tend to lump all cryptocurrencies under the one “detrimental to the environment” umbrella. Unfortunately, lawmakers and those shaping policy often harbor these misconceptions about cryptocurrency and the blockchain industry too. These sentiments then trickle down into the public consciousness, who then begins to bang on the table at lawmakers to “do something about the environmental impact of cryptocurrencies”. The cycle perpetuates.

The reality is there are a lot of people within the blockchain and cryptocurrency industry working towards more energy-efficient and sustainable solutions.

In this article, we’re going to look at some of the most energy-efficient, and therefore environmentally friendly cryptocurrencies and blockchains in existence today. We’ll also look at other blockchains that are trying to come up with innovative consensus mechanisms to reduce and offset crypto energy consumption, and whether those solutions are scalable.

Environmentally Friendly and Energy Efficient Cryptocurrencies

Hedera Hashgraph (HBAR)

In 2021, the University College London (UCL) Centre for Blockchain Technologies found that Hedera Hashgraph was one of the most energy-efficient distributed technology (DLT) platforms. UCL looked at a number of Proof-of-Stake blockchains and determined the expected energy consumption per transaction, as a function of network load.

Out of the blockchains UCL modeled (which included Ethereum 2.0, Cardano, and Polkadot), it was found that Hedera was the most energy-efficient. Hedera was found to use about 0.00002 – 0.00004 KiloWatt Hours per Transaction. For comparison, it was estimated that Ethereum 2.o could use up to 0.5 KiloWatt Hours per Transaction.

The DLT technology, created by Professor Leemon Baird, uses a mechanism known as “gossip about gossip” to reach consensus on its network, which uses orders of magnitude less energy than proof-of-work mining.

As well as using a very small amount of energy per transaction at scale, Hedera Hashgraph is also carbon negative. It achieves this through the quarterly purchase of carbon offsets. Dr. Baird said Hedera’s decision to become carbon negative was fueled by the desire to be the “most sustainable decentralized ledger for the digital economy.”

Algorand (ALGO)

Algorand is a Pure Proof-of-Stake blockchain that was designed by esteemed MIT Professor Silvio Micali.

Like Hedera Hashgraph, Algorand’s consensus mechanism is extremely energy efficient at scale.

Pure Proof of Stake is slightly different from other types of Proof of Stake. A person holding ALGO is not required to lock up their tokens. Anyone who has tokens in their wallet can stake and earn interest.

Users’ influence on the network is directly proportional to the number of ALGO they hold. Users can vote on consensus, as long as they are online. In addition, the selection of users to vote and choose blocks is completely random. Block finality is reached in a matter of seconds and there is a guarantee of no forking. The guarantee of no soft forks forming on the network ensures that energy is not unnecessarily wasted (as happens on POW networks, like bitcoin, where only one soft fork remains and the others are discarded). Due to the consensus protocol Algorand uses, the energy used to run a node on the network is negligible – in fact, you could run a node on a small device like a raspberry pi.

The UCL study also estimated Algorand’s energy usage as a function of network load. It found that it would be somewhere in the region of 0.00017 – 0.00534 KiloWatt Hours per Transaction.

In April 2021, Algorand published a press release in which it pledged to become the “greenest blockchain” and announced a partnership with ClimateTrade, a leader in carbon emissions transparency and traceability.

In order to become carbon-negative, Algorand and ClimateTrade have implemented a sustainability oracle, which notarizes Algorand’s carbon footprint on-chain for each epoch (a set amount of blocks). Using smart contracts, Algorand then locks the equivalent amount of carbon credit as an ASA (Algorand Standard Asset) into a green treasury so that its protocol keeps running as carbon-negative.

Tezos (XTZ)

Tezos is another Proof-of-Stake blockchain that claims to be extremely energy-efficient and environmentally friendly.

PricewaterhouseCoopers conducted an independent review of the carbon footprint of nodes on the Tezos network in accordance with the requirements of ISO 14040 and 14044 standards. The review found that the total annual carbon footprint of Tezos is equivalent to the average energy footprint of 17 global citizens.

In addition, the study by University College London, which examined the energy usage as a function of network load, estimated that Tezos uses between 0.00036 – 0.01096 KiloWatt Hours per Transaction – which was significantly lower than Ethereum, Bitcoin, Cardano, and other popular blockchains.

IOTA

IOTA is an environmentally friendly cryptocurrency focused on the internet of things. IOTA uses a mechanism known as “Tangle”, whose data structure allows transactions to be added in parallel, unlike blockchain alternatives. This makes IOTA extremely energy efficient.

In May 2021, following the latest update to their network, the IOTA Foundation published the results of a test they conducted regarding the energy usage of one of their network nodes, which was run on a Raspberry Pi device. Their test found that a Raspberry Pi 4 node uses just over a millionth of a kWh per IOTA message/transaction.

Previous research, prior to the network upgrade, conducted by Islamic Azad University in Iran found that IOTA used around 0.00016 KiloWatt Hours for each transaction.

This data would indicate that IOTA is one of the most energy-efficient blockchains in existence today.

Ripple (XRP)

XRP is an environmentally friendly cryptocurrency that focuses on cross-border payments and settlements.

Unlike Bitcoin, the entirety of XRP in existence was “pre-mined”, so no energy-intensive mining is needed for the cryptocurrency to work. This means that no energy is wasted in the transaction process.

Ripple, the company behind XRP, acknowledges that XRP was “designed with sustainability in mind” and “is an inherently green currency”.

The XRP Ledger relies on a unique consensus mechanism, which uses a negligible amount of energy, to confirm transactions on the network.

Ripple estimated that XRP uses around 0.0079 KiloWatt Hours per Transaction. It also calculated that XRP uses 474,000 kWh of energy annually. For comparative purposes, Bitcoin and Ethereum annually use around 57 Billion kWh and 3 Billion kWh respectively.

Energy Web Token (EWT)

The Energy Web Token (EWT) is the crypto of Energy Web Chain (launched in June 2019) which aims to build a more traceable, democratized, and decarbonized energy system by allowing developers to create completely customized decentralized applications (Dapps) specific to the energy sector. 

EWT aims to reduce energy waste by enabling people with devices that produce electricity  (e.g. solar panels, heat pumps, batteries, etc.) to become energy producers in order to reduce reliance on fossil fuels by connecting to its blockchain to sell their excess electrical capacity to the nearest user for the highest “bidder”.

Energy Web Chain relies on off-chain sensors, called Oracles, which provide real-world data to Energy Web Dapps to trigger smart contracts and monitor the price of energy assets, asset usage, and waste.

EWT is not an ERC 20 token and instead uses proof-of-authority (PoA) consensus with the help of validators in the energy sector, and is bridged allowing EWT to be transferred to the Ethereum mainnet, making EWT  interoperable across different blockchains. 

EWT is backed by the Energy Web Foundation (a non-profit organization) comprising of a partnership between Rocky Mountain Institute and Grid Singularity. 

The foundation launched Energy Web Decentralized Operating System (EW-DOS), allowing users to control and manage their electrical systems online.

Chia (XCH)

Chia (XCH) running on the Chia Network (founded by BitTorrent’s Bram Cohen) aims to solve the unsustainable energy-intensive computing process inherent in proof of work cryptocurrencies and claims to use just 0.16% of the annual energy consumption of Bitcoin, and 0.36% of Ethereum!

To compare mining and farming see details here.

The Chia Network consumed an average of 47,752 kilowatts (kW) as of July 19, 2021, based on the current netspace of 31.0 EiB. 

Chia also claims to be the most decentralized blockchain yet with approximately 350,000 nodes employing the first new Nakamoto Consensus (i.e. whichever of the blockchains has the longest will be the one the rest of the nodes accept as valid and work with) since 2009. 

However, Chia does not rely on proof of work (PoW) and instead uses a form of consensus algorithm that it calls ‘Proof Of Space and Time’ (PoST) consensus to utilize (or ‘farm’) unused storage space on computers (i.e. ‘plots’).

Not to be confused with the pie in the sky idea of Enron to utilize unused internet bandwidth, with Chia people with unused disk space (overall capacity of 300 GB or more) on normal hardware (with a processor with four cores) can farm Chia by allocating some of their disk space to plots to be farmed for the consensus algorithm rather than relying on incredibly energy-intensive mining. 

However, Chia farming is very tough on hard drives can reduce the lifespan of a 512-GB hard drive from a decade to 40 days and may void the warranties of devices.

However, as against this, the foundation announced in early 2021 that Chia can be farmed directly on Amazon Web Services (AWS) cloud servers so that anyone with a computer, an internet connection, spare storage space, and sufficient CPU power can participate in farming. This contrasts with the expensive specialist hardware that is needed to mine Bitcoin. 

Another contrast to Bitcoin’s hard-capped supply of 21 million tokens, is Chia’s predictable continuous inflation approach. Read Chia’s ‘Business White Paper“.

Chia reached a high of $1,600 in mid-May 2020 but has since dropped precipitously and sits at around $100 in January 2022. 

Comment below on whether you think Chia is a viable project long-term or are you concerned about its heavy toll on hardware? 

Environmentally Friendly Cryptos: Future Developments

There’s currently a lot of focus on the environmental impact of cryptocurrency. As more leaders in the crypto space look at the sustainability and energy consumption of distributed ledgers and blockchains, we’ll try to keep this article up to date periodically.

Let us know in the comments if you think we’ve omitted a cryptocurrency that is more energy-efficient and environmentally friendly than the ones mentioned above.

Disclaimer: The author(s) may have investments in some or all of the cryptos referred to.