Green cryptocurrencies

What are green cryptocurrencies and why are they important?

Cryptocurrency mining is a process that usually involves high energy consumption due to the complex levels of computation required. In order to minimise the carbon footprint associated with the first digital currencies such as Bitcoin, alternative models with a low environmental impact have been developed. These are known as green cryptocurrencies.

A green cryptocurrency must maintain the integrity of the blockchain while being energy efficient and minimising the carbon footprint.

A green cryptocurrency must maintain the integrity of the blockchain while being energy efficient and minimising its carbon footprint. As the issue of climate change becomes more and more important on the global agenda, the pressure is rising on digital currencies to address their environmental impact.

But first let’s consider the basics: what is a cryptocurrency? These digital currencies are decentralised and do not rely on banks to verify transactions. Anyone can send or receive money from anywhere using a cryptocurrency, given that they rely on peer-to-peer technology.

To analyse the energy efficiency of a particular cryptocurrency, it is necessary to inspect its process of creating and maintaining blocks of information: how the users of that currency have agreed to record and validate the information contained in each block of the distributed database.

Cryptocurrency mining

Popular cryptocurrencies – such as Bitcoin, the original cryptocurrency created in 2009 – are produced through mining. This is a process where computer power is used to solve mathematical puzzles. So-called “miners” make use of sophisticated hardware to solve these puzzles, in a process known as “proof of work” (PoW). This process secures transactions and mints new coins.

One way of picturing the process is to think about a giant lock, one that has millions of combinations. Miners are pitted against each other to unlock this block, something that will reap them rewards. You can try more combinations faster if you have more computing power. This is why the process uses so much energy, as high-powered computers are run non-stop by miners to carry out the work.

An estimate from the United States Energy Information Administration (EIA) that was published in 2024 found that electricity use in the United States from cryptocurrency mining ranged from 0.6% to 2.3% of the total, which is not only a huge share – anywhere between the electricity consumption of three million to six million homes – but also more than the demand of some entire countries. What’s more, Bitcoin is estimated to consume approximately 150 terawatt-hours of electricity, which is more than the entire country of Argentina, which has over 45 million residents.

From Proof of Work to Proof of Stake

To address this rampant consumption of energy, green cryptocurrencies use technologies known as “Proof of Stake” (PoS) or Delegated Proof of Stake (DPoS), as well as other innovative mechanisms that minimize energy consumption. Rather than relying on electricity-hungry computing processes, miners instead need to hold a certain amount of the cryptocurrency that they are mining, and are selected via a system that works like a digital lottery. This stake acts like a kind of deposit, one that will be lost if there is any attempt to cheat the system.

Ethereum makes 'The Merge'

A key moment for these more energy-efficient green cryptocurrencies was back in September 2022. It was then that Ethereum, the second-biggest and second-most-popular digital currency after Bitcoin, migrated to PoS, in an update that was dubbed “The Merge”. This saw a massive 99.9% fall in the currency’s energy use. It fell from electricity consumption equivalent to that of the country of Switzerland, to one that was more akin to a small town.

Proof of Work and Proof of Stake – What’s the difference?

Proof-of-Work (PoW)

Envision a vast digital landscape where thousands of miners are competing to solve complex mathematical problems. The first to solve the puzzle earns the right to add a new block to the blockchain and receives a cryptocurrency reward. While this process secures networks like Bitcoin, it requires substantial computational power – leading to high energy consumption and a significant carbon footprint.

Proof-of-Stake (PoS)

The Proof-of-Stake model selects validator nodes based on the amount of cryptocurrency they commit, or "stake," as collateral. Think of it as a digital lottery: the more coins you stake, the greater your chance of being chosen to validate the next block. This mechanism significantly reduces the need for energy-intensive computations, offering a more sustainable and environmentally friendly alternative to PoW.

Cryptocurrency mining processes

SEE INFOGRAPHIC: Cryptocurrency mining processes [PDF]

The advantages of Green Cryptocurrencies

A lower carbon footprint

Adopting Green Cryptocurrencies will see a lower carbon footprint from the digital currency sector. Thanks to their more energy-efficient algorithms, mining and transactions require less electricity and thus lower carbon emissions, helping to combat the effects of climate change.

Incentivising renewables

Some Green Cryptocurrencies incentivise the use of renewable energy sources for their mining and validation processes, meaning that miners or validators who utilize clean energy such as solar, wind or hydroelectric will receive rewards. This is also a way of reducing the carbon footprint that’s associated with cryptocurrency mining.

Faster transactions

Green Cryptocurrencies can process transactions more quickly thanks to consensus mechanisms with faster block generation times. This facilitates seamless peer-to-peer transactions and improves the user experience.

Environmental awareness

Green Cryptocurrencies have drawn attention to the environmental impact of traditional cryptocurrencies such as Bitcoin. More uptake of digital assets that have a lower carbon footprint should lead to more positive changes across the sector.

Corporate social responsibility

Companies can not only align with environmentally responsible practices by developing Green Cryptocurrencies into their operations, but can also demonstrate their commitment to sustainability. This will enhance their corporate social responsibility profile, as well as appeal to consumers who are ethically conscious.

Reducing E-Waste

Traditional mining equipment often becomes obsolete rapidly, generating significant amounts of electronic waste. Green cryptocurrencies that embrace more sustainable consensus mechanisms help address this issue, supporting broader efforts in environmental preservation.

The risks of Green Cryptocurrencies

But there have been concerns about the shift to green cryptocurrencies. Users have raised doubts that PoS could be less secure compared to PoW. The system also benefits those with more coins, as they have a bigger chance of validating transactions, potentially creating a system where a small number of people can have control of the network. This flies in the face of the original purpose of digital currencies, which was to create a decentralised system. As cryptocurrencies develop, these concerns over security, network integrity and accessibility will need to be addressed.

The challenge of efficiently storing power

Five of the most-prominent green cryptocurrencies

Cardano (ADA)

This green cryptocurrency was founded by Charles Hoskinson, who was a co-founder of Ethereum. At its heart is its Ouroboros protocol, which is the world’s first peer-reviewed, verifiably secure blockchain consensus, and whose Proof of Stake mechanism keeps energy consumption to a minimum.

Stellar (XLM)

Stellar (XLM) stands out for its energy-efficient Stellar Consensus Protocol, which avoids the heavy computational demands of Proof-of-Work systems. Stellar is actively committed to sustainability, supporting eco-friendly initiatives and aiming to minimise its environmental footprint. Through strategic partnerships with financial institutions and payment providers, Stellar extends its green mission into real-world financial ecosystems.

Solana (SOL)

This digital currency makes use of a unique consensus mechanism that is called “Proof of HIstory”, which facilitates quicker validations but without huge consumption of energy. The Solana Foundation claims that one Solana transaction uses around 719 kilojoules of energy, which is less than that needed for a single Google search.

Chia (XCH)

Chia offers a fresh take on blockchain sustainability with its innovative “proof of space and time” consensus mechanism, which replaces energy-intensive computing with unused hard drive storage. It combines Proof of Space, i.e. storage space used, and Proof of Time, which is a time delay used to prevent manipulation. This approach significantly reduces power consumption and opens the door to more eco-conscious participation in the network.

Tezos (XTZ)

This cryptocurrency has been around since 2017, and uses a “liquid Proof of Stake” protocol. This means that anyone who holds at least 8,000 tokens of Tezos can become a validator. It is also as decentralized as possible, and allows holders of XTZ to make proposals and vote on potential upgrades.

Algorand (ALGO)

This leading eco-friendly blockchain is committed to achieving carbon negativity through its energy-efficient proof-of-stake mechanism. This approach ensures minimal energy use while maintaining fast and secure transaction validation. Further strengthening its environmental credentials, Algorand partners with carbon offset initiatives and actively pursues net zero emissions.

*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such.