Blockchains Are Getting Greener – Here's Why It Matters

To its detractors, Bitcoin, with its proof-of-work consensus mechanism that mandates warehouses racked with overclocked miners, is an environmental disaster. All of that energy is expended on securing a computer network when there are regions whose citizens are priced out of powering their homes. At a time when much of the world is having supply problems and geo-political skirmishes are being exacerbated by energy shortages, it seems awfully indulgent for Bitcoin and its fellow blockchains to be hogging all the megawatts.

The reality, as so often happens, is more nuanced. While Bitcoin alone consumes more energy than Argentina on an annual basis, its defenders point out that much of this comes from renewables that lie far from consumer regions and even from sources like diverted methane gas that would otherwise go to waste. Nevertheless, cryptocurrency at least has a reputational problem in terms of its environmental output, regardless of its energy sources.

Stung by criticism of the industry and fears that its negative environmental image could detract potential users, blockchain developers have shifted to less power-hungry means of securing their networks. As a new report from crypto data firm Messari shows, these efforts are starting to bear fruit. It's deemed Polkadot and Tezos to be the most environmentally friendly blockchains.

Staking Chains Earn Plaudits

There are two ways in which blockchains can make themselves greener. The first is by choosing a low-energy consensus mechanism — that is, the system by which computers confirm transactions and secure the network. Proof-of-stake (PoS), which requires network validators to lock tokens as collateral, rather than the computationally intensive proof-of-work (PoW) favored by Bitcoin, is one such solution. PoS is used by the likes of Algorand, Avalanche and Solana, which also feature in Messari's Regenerative Finance report.

The second way in which blockchains can enhance their environmental credentials is through offsetting — the globally accepted method of sequestering carbon to atone for that expended by industry. This policy has helped push Polkadot and Tezos to the top of the table. The latter network has become popular with socially conscious artists seeking to launch NFTs on a cleaner blockchain than Ethereum, which is itself in the process of transitioning from PoW to the lighter PoS consensus, driving down its energy footprint.

Beyond Ethereum

Dubbed "Ethereum killers" on account of their similar features, including smart contracts that support NFTs, Tezos and Polkadot are well positioned to surf the growing environmental wave that rewards low-energy, high-throughput networks. Designed by former Ethereum co-founder Dr. Gavin Wood, Polkadot, whose DOT token is ranked 13th by market cap, has been pushing out new products and features all year.

Polkadot aims to become an interoperable home for web3 applications, be it consumer finance, gaming or the Internet of Things. It's not the only proof-of-stake chain aiming to corner the market for web3 apps; so is Tezos, which claims that its network "requires significantly less energy and cost to operate [than PoW], making it an ideal alternative platform for building blockchain applications that are eco-friendly." Not to be left out, Avalanche network, which also makes the Messari report, bills itself as being "blazingly fast, low cost and eco-friendly."

While environmental concerns have ensured that proof-of-work is no longer in vogue, it remains a robust means of securing decentralized networks routing billions of dollars in value. For this reason, Bitcoin is unlikely to move away from PoW in the foreseeable future. For smart contract chains, however, the race is on to woo the next 500 million users. Flaunting their greenness is now considered a cornerstone of that strategy.

(Sadie Williamson is the founder of Williamson Fintech Consulting.)