If you thought the national debate on climate change and green energy would skip the cryptocurrency industry, you are very wrong. The White House just released a 30-page report (“Climate and Energy Implications of Cryptocurrencies in the United States”), highlighting electricity usage and energy consumption trends in the cryptocurrency industry . As the report makes clear, the cryptocurrency industry must do its part to realize the White House’s goal of reducing greenhouse gas emissions by 50% by 2030.
The report’s conclusion is that some cryptocurrencies consume a significant amount of energy resources and are the ones that need to focus on becoming more energy efficient. No surprises here, and Bitcoin (BTC -1.07%) ranked as the biggest culprit, due to the energy-intensive nature of Bitcoin mining. Conversely, proof-of-stake blockchains such as Cardano (Ada -1.77%) And Solana (SOL 0.38%) earned praise for being two of the most energy efficient blockchains.
Proof of work vs. proof of stake
The White House report included a surprisingly nuanced discussion of the differences between proof-of-work blockchain and proof-of-stake blockchain. This included charts and graphs detailing how and why power consumption can differ so much across blockchains. The computing power required to mine Bitcoin is now so intense that it has an impact on local power grids.
In fact, global Bitcoin mining consumes more electricity in a year than entire nations, while proof-of-stake blockchains consume only a small fraction of it. Right now, Bitcoin mining is consuming about the same amount of electricity per year as Argentina and Australia. More worryingly, the United States now hosts 38% of Bitcoin’s global energy consumption.
Based on this report, one thing is extremely clear: a crypto will have a hard time claiming to be environmentally sustainable if it still uses a proof-of-work consensus mechanism to validate transactions. It is bearish for Bitcoin, which uses proof of work, and is bullish for Cardano and Solana, both of which use proof of stake. The case is mixed for Ethereum (ET -1.06%)which is in transition from proof of work to proof of stake.
Green cryptocurrencies and institutional investors
If you look at the appendix to the 30-page White House report, a total of six proof-of-stake cryptocurrencies caught the attention of the White House’s Office of Science and Technology Policy: Cardano, Solana, A pois (POINT -2.41%), Avalanche (AVAX -1.55%), Algorand (ALGO -2.31%) And Tezo (XTZ -1.74%). Based on publicly available data, it is possible to see how all these blockchains stack up against each other, in terms of parameters such as “total carbon emissions” and “electricity per transaction”. These could become metrics for measuring how green a given cryptocurrency is. Overall, Cardano and Solana ranked as two of the best taking these metrics into account.
This clear delimitation between proof-of-work cryptocurrencies and proof-of-stake cryptocurrencies could begin to impact institutional investors’ investment decisions, especially given the renewed focus on climate change. Given the choice between two cryptocurrencies, institutional investors could start favoring cryptocurrency with greener credentials. In the same way that endowments and pension funds need to be careful when investing in certain types of companies, they may also need to be careful when investing in certain cryptocurrencies or certain companies that serve the cryptocurrency industry, including cryptocurrency miners.
Blockchain innovations for the climate policy agenda
The final section of the report touched on the various ways blockchains could be used to support climate change policy. It’s not just how much energy a blockchain is consuming; it’s also what kinds of apps or services developers are building on that blockchain. For example, the report highlighted that the California network is already using blockchain technology to cope with potential power blackouts.
The report separated these blockchain innovations into two classes: climate monitoring and climate mitigation. For example, decentralized exchanges built on a blockchain like Cardano or Solana could be an efficient way to trade carbon shares and carbon credits locally, making it a useful innovation for climate mitigation.
So, if you’re looking to invest in a green cryptocurrency, first focus on using a proof-of-stake consensus mechanism. From there, focus on cryptocurrencies known in the industry for sustainable, energy-efficient blockchains, such as the six cryptocurrencies featured in the appendix to the White House report.
For this reason, I am bullish on both Cardano and Solana, as well as the new and improved Ethereum (as soon as it completes its proof of stake transition). Overall, the White House report appears to be giving a positive signal for these cryptocurrencies. Sustainability seems to become an increasingly important framework for measuring the attractiveness of different cryptocurrencies, and both Cardano and Solana appear to be at the forefront.
Dominic Basulto has positions in Bitcoin, Cardano and Ethereum. The Motley Fool has positions and recommends Avalanche, Bitcoin, Ethereum and Solana. The Motley Fool has a disclosure policy.