Unless you have been living under a rock the past few years, you have probably heard of bitcoin, a type of cryptocurrency that has generated headlines for its price rises (and falls) over the past five years. So, what has cryptocurrency, and the blockchain in general, got to do with climate action? First, let’s start with the basics.

What is cryptocurrency?

Cryptocurrency is a digital currency which allows two people to transfer money to each other without it going through a central authority (such as a bank). It is secured by cryptography (hence the name), which makes it almost impossible to counterfeit. Where once cryptocurrency was a niche subject, it has exploded into the mainstream in recent years. This mirrors the price of the most famous cryptocurrency, bitcoin, which cost less than $100 in 2013, but is now selling for more than $50,000 each.

So, what is the blockchain?

The blockchain is essentially a digital ledger of transactions that is distributed across the entire network of computer systems that make up that blockchain. The ‘block’ refers to the individual record of each transaction, while the ‘chain’ refers to the fact that those records are linked in one chain. Each time a transaction occurs, a record of that transaction is added to every participants’ ledger. This allows for transparency, efficiency and security.

Are there any climate action benefits to the blockchain?

Great question. There are multiple ways the blockchain can help with climate action, mainly due to the fact it is decentralised and so fosters greater transparency. As Alexandre Gellert Paris, Associate Programme Officer at UNFCCC says: “As countries, regions, cities and businesses work to rapidly implement the Paris Climate Change Agreement, they need to make use of all innovative and cutting-edge technologies available. Blockchain could contribute to greater stakeholder involvement, transparency and engagement and help bring trust and further innovative solutions in the fight against climate change, leading to enhanced climate actions.” These include:

Improved carbon emission trading

The blockchain can be used to improve the carbon asset transactions system. Energy Blockchain Lab and IBM created a blockchain platform to trade carbon assets in China, which “allows high-emission organisations to monitor their carbon footprints and meet quotas by buying carbon credits from low emitters.”

Facilitated clean energy trading

Blockchain technology could also allow for the development of peer-to-peer platforms to trade renewable energy on. Consumers would be able to buy, sell or exchange renewable energy assets with each other, using tokens or digital assets representing a certain quantity of energy production.

Enhanced climate finance flows

The technology could also allow for the development of platforms for peer-to-peer renewable energy trades. Consumers would be able to buy, sell or exchange renewable energy with each other, using tokens or tradable digital assets representing a certain quantity of energy production.

Better tracking and reporting of emissions reduction

Blockchain technology can ensure more transparency around greenhouse gas emissions and make it easier to track and report reduction emissions, addressing possible double counting issues. It could serve as a tool to monitor the progress made in implementing the Nationally Determined Contributions under the Paris Agreement. As Massamba Thioye, a co-Chair of the Climate Chain Coalition, and Manager, Regulatory Framework Implementation sub-division, Mitigation division at UN Climate Change, says: “In climate policy making, transparent measurement, reporting and verification of climate action is important. It enables policymakers to understand where they need to incentivize greenhouse gas emission reductions while being confident that they comply with the requirements set in its standards.”

How is it mined and why is it bad?

Cryptocurrency mining occurs when a computer solves a number of math equations, and obtains some cryptocurrency in return. The more powerful the computer, the more calculations per second it can make, increasing the chances of making the right one, solving the equation, and earning bitcoin. What this means in practice is lots of extremely high-powered computers solving equations, and lots and lots of electricity used. Some ‘miners’ even connect whole warehouses full of computers to the network, in order to increase their chances of earning bitcoin. This obviously uses a lot of power: a study from the University of Cambridge in February revealed that bitcoin consumes more electricity than Argentina. This is still a fraction of what the internet uses in total, with data centres and data transmission centres, which power the internet totaling 2 per cent of global internet use in 2019. Of course, how big the emissions from cryptocurrency are is dependent on where in the world you live. Someone mining bitcoin in say, Northern China, will more than likely be using electricity from coal-powered plants. And with bitcoin mining emissions in China predicted to reach 130 million tonnes by 2024, that’s a serious issue, particularly given the fact China has committed to achieving net zero carbon emissions by 2060.

Can anything be done to alleviate emissions right now?

Yes, there are ways that emissions from mining can be reduced. Take for example, Genesis Mining, an Icelandic company which enables crypto mining in the cloud and uses 100 per cent renewable energy to power its computers. Indeed, if everyone mining crypto was connected to an electricity grid that uses 100 per cent renewable energy, there wouldn’t be a problem. However, as we know, we are far from that scenario: 28 per cent of global electricity came from renewable sources in the first quarter of 2020, although that figure is expected to rise to 45 per cent by 2040.

What is likely to happen in the future?

Expect the blockchain to become “as ubiquitous as the internet,” according to Thioye. “The internet is central to data transfer, but the blockchain is central to value transfer,” he says. Unfortunately, the issues around cryptocurrency mining are likely to remain for some time too.