Alex Pron founded Crossover Capital to help entrepreneurs, RIAs, & family offices develop a responsible plan to approach digital assets.
For years now you’ve likely seen and heard how blockchain and its associated technologies are bad for the environment. Although it has often been highlighted negatively, some sustainability magazines and peer-reviewed journals are now sharing ways proof of work cryptography can actually support climate action. This contradiction, of course, leads to a lot of confusion and misinformation around the topic.
In this article, I’ll explore the data around proof of work’s energy use and climate impact.
What Is Proof Of Work Cryptography?
Blockchain technology allows users to transfer value across time and space without reliance on a trusted third party, like a bank or credit card company. To circumvent the middleman, decentralized networks, like Bitcoin, use proof of work (PoW) cryptography, a decentralized consensus mechanism that relies on miners competing to process transactions.
Miners must purchase electricity and computing power to confirm transactions and secure the network, receiving newly mined digital tokens as a reward. Proof of work at scale requires significant energy, and this need only increases as more miners join the network.
Negativity Bias
Novel technologies often initially face skepticism and negative press. Electricity, automobiles, telephones, airplanes and the internet… the list goes on and on. Skepticism around blockchain technology has been no different (and may have even been more intense).
At the root of much of this is negativity bias. This cognitive bias states that even when positive or neutral outcomes of equal intensity occur, negative outcomes have a greater effect on the psychological state of humans.
Whether you’re an investor, business owner, athlete or poker player, losses may seem to stick out in your mind way more than wins you’ve stacked up over the years.
With respect to blockchain, you may remember hearing about money laundering schemes, terrorism, cybercrime and the dark web in the early days (and you may still hear critics reference these things). You may not be as likely to remember stories about the technology being used for charitable donations, humanitarian aid and its ability to protect personal savings in countries experiencing hyperinflation.
Additionally, studies have found that negative headlines drive more clicks. This is negativity bias at work.
In 2018, Alex de Vries published “Bitcoin’s Growing Energy Problem” in a journal called Joule. This commentary (which has since been refuted) quickly became the most cited work on energy consumption.
Mature research on an emerging technology can take decades to be released. By understanding negativity bias, it’s easy to see how people can latch onto a single article and determine that blockchain technology is bad for the environment.
So, What Has Changed?
Proof of work’s overall environmental impact depends on the energy source(s) used. In recent years, mining became more focused on sustainability. Sustainable energy usage for Bitcoin increased to 54.5% due to greater reliance on renewable sources.
Some entrenched negativity biases have also been disproven. The U.S. Treasury’s National Money Laundering Risk Assessment report for 2024 noted that the use of virtual assets for money laundering remained “far below” that of fiat currency.
As additional positive use cases were developed for PoW, various publications, sustainability magazines, and research papers began to change their tune to a more positive approach. Eventually, mainstream media also completed an about-face as I’ve noticed reporting on Bitcoin’s energy usage has been net positive since April 2023.
How PoW Cryptography Supports Climate Action
1. Incentivizes Renewable Energy
Mining operations seek the cheapest electricity sources in order to maximize profits. This has led some miners to set up operations in areas with excess renewable energy (i.e., hydro, wind and solar), which can reduce waste and help fund green energy projects.
2. Stabilizes The Grid
Miners are able to operate flexibly, shutting down during peak demand and consuming surplus energy when demand is low. This can help stabilize grids, especially those relying on intermittent renewable sources.
3. Utilizes Stranded Energy
Mining has been shown to monetize otherwise wasted energy sources (i.e., flared natural gas from oil extraction or remote hydroelectric power that lacks the infrastructure to reach major grids).
4. Drives Energy Efficiency Innovations
High electricity costs incentivizes the development of more efficient mining hardware. Pressure to minimize costs can lead to innovations in energy-efficient computing and cooling technologies.
5. Supports Green Projects
Some initiatives use mining profits to invest in reforestation, carbon offsets or sustainability programs. This turns blockchain-related activities into a source of funding for environmental efforts.
6. Facilitates Progress In Developing Countries
In Africa, Bitcoin mining has driven economic growth in what’s described as a “win-win-win” scenario. Miners win because they’re able to mine tokens, energy generation is a win as mini grids can sell all of their power, and the community wins because they have more efficient and cheaper power (which leads to new business opportunities).
Access to energy and electricity is a luxury that many in developing countries might not otherwise have, leading to more efficient farming, creation of goods and economic growth.
7. Assists Humanitarian Efforts
There are three main humanitarian use cases supported by PoW:
• Avoiding currency debasement: From the Roman Denarius, to the Rai stones of Yap Island, to modern-day hyperinflation in Zimbabwe, Argentina and Venezuela, many forms of money throughout human history have been debased in some way, leaving holders of that money less wealthy.
• Property rights: In many developing countries, property can be stolen by bad actors or the government. By memorizing 12 words (their seed phrase), globally, anyone can maintain sovereignty over their digital property and ability to transact.
• Lower transaction costs: With traditional organizations like Western Union, transaction fees can be steep and complicated. Decentralized networks can typically settle transactions more quickly and for a fraction of the cost.
The Bottom Line
In the late 1890s, William Randolph Hearst is believed to have coined the phrase, “If it bleeds, it leads,” recognizing that negative news moved the needle the most. This still holds true today, which is why education is paramount in ensuring you’re viewing both sides of any issue.
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