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Most Energy Efficient Cryptocurrencies 2023

MORITZ PUTZHAMMER

28 March 202315 min read

Table of contents

With record heat waves, water shortages in some places, floods in others, and extreme weather events becoming increasingly common across the world, there’s growing interest in green technology and its widespread implementation. For those of us in the world of FinTech, however, the issue of whether cryptocurrencies have a positive or negative net effect on the environment remains a polarizing one.

Environmentalists, on the one hand, argue that Bitcoin (for example) is an ecological disaster due to the high energy consumption required to mine it. According to the Bitcoin Electricity Consumption Index run by Cambridge University’s Centre for Alternative Finance, bitcoin mining uses more energy each year than Malaysia or Sweden.

Crypto enthusiasts, on the other hand, are quick to point out that the traditional financial system is far from green. It has been reported that 60 of the world’s biggest banks have handed over $3.8 trillion to fossil fuel companies and that 49% of financial institutions don’t conduct any analysis about the climate impacts of their portfolio. Big banks also burn through an astonishing amount of fossil fuels to power their infrastructure. Sound like deflection? Then consider a recent report, which found that 76% crypto miners use renewables as part of their energy mix.

Whichever side of the coin you happen to find yourself, cryptocurrencies and the tech that makes them possible can be both eco-friendly and profitable. In this article, we’ll take a brief look at some of the greener cryptocurrencies available to investors as well as environmentally-friendly alternatives to Proof-of-Work blockchains, the impact of Ethereum’s Merge, and energy consumption and CO2 emissions, among other things.

What Are Energy Efficient Cryptocurrencies?

Energy-efficient cryptos are digital currencies that use significantly less energy compared to traditional cryptocurrencies such as Bitcoin. By using different consensus algorithms to validate transactions on their blockchain network, these algorithms consume less energy than the proof-of-work (PoW) algorithm used by Bitcoin, making them at the greener end of the eco-friendly blockchain spectrum.

Energy consumption for proof-of-work (PoW) cryptocurrencies. Source: CCRI

One of the most popular energy-efficient consensus algorithms is proof-of-stake (PoS), which uses significantly less energy compared to PoW. In PoS, validators (or "stakers") are chosen to validate transactions based on the amount of cryptocurrency they hold and "stake" in the network. This reduces the energy required to validate transactions, as there is no need for complex computational puzzles to be solved as in PoW. Some examples of energy-efficient cryptocurrencies that use PoS are Cardano (ADA), Polygon (MATIC), and Binance Coin (BNB).

Energy consumption for proof-of-stake (PoS) cryptocurrencies. Source: CCRI

In addition to PoS, there are other consensus algorithms that use significantly less energy than PoW. For example, the directed acyclic graph (DAG) consensus algorithm used by IOTA requires very little energy to validate transactions. In sum, PoS-based cryptocurrencies are considered to be the most energy-efficient, and their adoption is likely to increase as the environmental impact of cryptocurrencies comes under greater scrutiny.

Green(er) Alternatives to Proof-of-Stake Protocols

Before we get to our actual list of green cryptocurrencies, let’s take a look at some environmentally friendly alternatives to Proof-of-Stake protocols.

Delegated Proof-of-Stake (DPoS)

In DPoS, instead of staking cryptocurrency to become a validator, token holders can delegate their tokens to other validators. These validators are then responsible for validating transactions and creating new blocks. DPoS requires significantly less energy compared to PoW, as there is no need for complex computational puzzles to be solved, and the consensus process is based on reputation and trust.

Proof-of-Authority (PoA)

In PoA, validators are pre-selected and authorized by the network, typically based on their reputation, identity, or other factors. Validators take turns creating new blocks, and there is no need for complex computational puzzles to be solved. This makes PoA very energy-efficient, but it does come at the cost of decentralization and security, as the network relies on a small number of trusted validators.

Byzantine Fault Tolerance (BFT)

BFT is a class of consensus algorithms that allow for agreement to be reached among a set of validators, even if some of them are malicious or faulty. BFT can be implemented using various techniques, such as Practical Byzantine Fault Tolerance (PBFT) or Federated Byzantine Agreement (FBA). BFT-based consensus algorithms are known for their efficiency and scalability, as they can reach consensus quickly and with low latency.

Directed Acyclic Graph (DAG)

DAG is a consensus mechanism used by some cryptocurrencies such as IOTA. In DAG, transactions are validated by other transactions, forming a directed acyclic graph structure. This allows for parallel processing of transactions and eliminates the need for block creation and mining. DAG is known for its efficiency and scalability, and it can be very energy-efficient when implemented correctly.

Ethereum’s Merge and Energy Efficiency

The Merge was a highly anticipated event in the history of Ethereum. This was the network’s transition from the Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake (PoS). By implementing PoS, Ethereum no longer required energy-intensive mining to secure the network, but rather, it utilized staked Ether (ETH). According to Vitalik Buterin, one of Ethereum's creators, the concept of PoS has been around longer than Ethereum, but it took almost seven years of planning and testing to go from a theoretical solution to a working practical version.

Electricity consumption of Ethereum pre-Merge and post-Merge using the Eiffel tower and a plastic toy for comparative purposes. Source: CCRI

The primary benefit of using PoS, as opposed to PoW, is its positive environmental impact. Previously, a single transaction on Ethereum’s PoW-based blockchain required almost the same amount of energy as the average American household uses in a week, resulting in a carbon footprint of 109.71 kg of CO2. This is equivalent to the energy needed to power 243,155 VISA credit card transactions. As a result, the Ethereum network consumed as much energy as the country of Bangladesh. By eliminating the need for mining, a transition to PoS has significantly reduced the network’s energy consumption.

Tests conducted on the Beacon Chain before the Merge indicated that the transition would reduce Ethereum’s energy consumption by 99.95%, making PoS approximately 2000 times more energy-efficient than PoW. This has been the case, as the carbon footprint of a single transaction on the Ethereum network decreased from 109.71 kg to 0.01 kg, as recorded on September 20, 2022.

Electricity consumption of Ethereum pre- and post-Merge. Source: CCRI

Contrary to popular belief, the Merge does not directly reduce gas fees paid per transaction, as they are dependent on block space demand. The Merge does, however, set the foundation for “sharding”, which will distribute the computational workload across the Ethereum network. This allows each node to process a small portion of the network's transactional load, reducing the computational power needed to manage each shard. Consequently, the network's transaction throughput can scale almost indefinitely at relatively low costs. While the PoW-based Ethereum network could handle 10 - 30 transactions per second (tx/s), the “final” sharded version of Ethereum is expected to process ~100k tx/s, exceeding the 24k tx/s transactions that the Visa network can handle.

CO2 emissions of Ethereum pre- and post-Merge. Source: CCRI

The primary concern with the Merge is that it increases Ethereum's centralization. Not too long ago, US regulators banned Tornado Cash, a service used to anonymize Ethereum transactions, raising concerns about how governments can influence a decentralized system. PoS raises concerns that a few corporations, such as Lido, Coinbase, Kraken, and Binance, who control a combined total of 54% of staked ETH, can make the network more vulnerable to changes in government regulations. This threatens the very idea of open, free, and decentralized finance (DeFi).

Eco-Friendly Crypto Based on Energy Consumption

Source: CCRI

Eco-friendly cryptocurrencies can be categorized based on their energy consumption according to three primary groups.

Proof-of-Work (PoW) Alternatives

These are cryptocurrencies that use consensus mechanisms other than PoW to validate transactions on their network. By doing so, they reduce the energy consumption associated with PoW-based cryptocurrencies such as Bitcoin. Examples of PoW alternatives include Proof-of-Stake (PoS), Proof-of-Capacity (PoC), and Proof-of-Importance (PoI).

Low energy consumption

These are cryptocurrencies that have been designed to use a minimal amount of energy in their operation. These may use a PoW consensus mechanism, but they have been optimized to use less energy than traditional PoW-based cryptocurrencies. Examples of low-energy cryptocurrencies include Chia (XCH) and Filecoin (FIL).

Renewable energy

These are cryptocurrencies that have committed to using renewable energy sources such as solar, wind, and hydroelectric power to power their mining operations. This reduces their carbon footprint significantly and makes them more environmentally friendly. Examples of renewable energy cryptocurrencies include SolarCoin (SLR) and Power Ledger (POWR).

Eco-Friendly Crypto Based on CO2 Emissions

Source: CCRI

Eco-friendly cryptocurrencies can also be categorized based on their CO2 emissions, which refer to the amount of carbon dioxide released into the atmosphere as a result of the energy consumption required to power their blockchain network.

One way to categorize eco-friendly crypto based on CO2 emissions is to look at their carbon offsetting initiatives. Some eco-friendly cryptocurrencies, such as BitGreen (BITG) and SolarCoin (SLR), use a portion of their block rewards or transaction fees to fund carbon offsetting projects, such as reforestation, renewable energy projects, and carbon capture technologies. By offsetting their carbon emissions in this way, these cryptocurrencies can claim to be carbon neutral or even carbon negative, meaning that they are removing more carbon dioxide from the atmosphere than they are emitting.

Another way to categorize eco-friendly crypto based on CO2 emissions is to look at the energy source used to power their blockchain network. Cryptocurrencies that use renewable energy sources, such as solar, wind, hydroelectric, or geothermal power, are considered to be more environmentally friendly than those that rely on non-renewable energy sources, such as coal, oil, or natural gas.

For example, Chia (XCH) uses a proof-of-space and proof-of-time consensus mechanism that does not require energy-intensive mining like proof-of-work. It relies on unused storage space to secure its network, and its transactions are verified through a process that requires minimal energy consumption, making it an eco-friendly cryptocurrency.

Most Eco-Friendly Cryptocurrencies 2023

While this isn’t this list isn’t an exhaustive one, it is a nice primer to the world of environmentally-friendly cryptocurrencies. Without further ado, here are some of our top picks.

Hedera Hashgraph (HBAR)

Hedera, Hashgraph, green crypto

You might be surprised to learn that Hedera Hashgraph, a decentralized public network used for in-app payments and micropayments, is one of the world’s biggest cryptocurrency networks. Powered by hashgraph consensus, its proof-of-stake public network is characterized by incredibly low bandwidth consumption, among other things, with HBAR being its native, energy-efficient cryptocurrency. It’s also led by the Hedera Governing Council, which consists of up to 39 term-limited organizations and enterprises, such as Google, Boeing, Deutsche Telekom, and LG, among others.

Hedera Hashgraph has teamed up with Power Transition, a cloud-based software and hardware platform that enables peer-2-peer energy trading and microgrid management, to produce and develop sustainability projects, which include providing more efficient energy to homes and apartments in the UK as well as reduced charging costs at EV charging stations by up to 50% by using Hedera Token Service as its payment rail.

According to the green website LeafScore, “Power Transition estimates that the Hedera Hashgraph platform is 250,000 times more energy efficient than Bitcoin, using just 0.001 kilowatt hours per transaction, compared to 250 kWh for Bitcoin (Digiconomist puts it at 950 kWh), 55 kWh for Ethereum, and 0.003 for Visa.”

Hedera Hashgraph also uses a "virtual voting" mechanism, where the consensus process is based on gossiping and virtual voting among the nodes in the network. This virtual voting process is designed to be highly efficient and scalable, allowing for fast transaction processing without requiring the same level of energy consumption as PoW-based cryptocurrencies.

Furthermore, Hedera Hashgraph has been designed to be environmentally friendly and sustainable, with a focus on reducing the carbon footprint of the network. For example, Hedera has committed to becoming carbon-neutral, and the company has also partnered with the Climate Neutral Group to offset its carbon emissions.

SolarCoin (SLR)

SolarCoin, SLR, crypto, green crypto

SolarCoin (SLR) is a digital currency designed to incentivize and reward the generation of solar electricity. It was created in 2014 with the goal of promoting solar energy adoption and combating climate change by rewarding solar energy producers. They’ve even coined their own neologism, Solarity, to refer to the point at which the price of 1 SolarCoin (SLR) equals the bid price for 1MWh of solar PV (photovoltaic) generation.

SolarCoin uses a unique proof-of-work system that requires users to submit verified solar energy production data as proof of work. This means that for every MWh of solar energy produced, SolarCoin awards one coin to the producer. The process of verifying the solar energy production is done through a trusted third-party network, which ensures the accuracy and reliability of the data.

One of the main reasons why SolarCoin is considered a green cryptocurrency is because it promotes the use of solar energy as a clean and sustainable alternative to traditional energy sources that rely on fossil fuels. By incentivizing the production of solar energy, SolarCoin encourages the use of renewable energy sources and helps to reduce the carbon footprint associated with energy production.

Unlike energy-thirsty bitcoin mining, Solarcoins are given to participating owners of solar power systems according to how much electricity they generate rather than based on the energy that they consume via mining. The systems of the respective owners then send information about energy generation to the SolarCoin Foundation, a global solar energy reward program now in over 100, typically through a monitoring system or platform. For every megawatt hour created, generators receive one coin. Generating your own electricity via solar energy and earning money

Or, as the platform puts it, their mission is “to accelerate solar energy uptake and the global energy transition to a low-carbon source of energy. Solarcoin is designed to act as a free global solar energy incentive for the next 40 years.” Incentivizing solar electricity production by rewarding generators with solar coins, which in turn reduces the cost of electricity production–sounds like a win-win proposition.

BitGreen (BITG)

Bitgreen, BITG, crypto, green crypto

Founded in 2017 as an energy-efficient alternative to Bitcoin, BitGreen uses a low-energy Proof-of-Stake (PoS) algorithm as part of their proprietary protocol. Their focus on sustainability is realized via incentivizing environmentally-friendly choices in a manner similar to SolarCoin’s approach. By using bikeshare programs, volunteering, or supporting sustainable vendors and charities, for example, users are rewarded for decisions that reduce their carbon footprint(s).

The BITG network also has a feature called "Green Protocol," which is designed to encourage users to reduce their carbon footprint. This protocol provides users with carbon credits that they can use to offset their carbon emissions. The credits are generated by verified green projects, such as reforestation, renewable energy, and sustainable agriculture projects, that have a positive impact on the environment.

In addition, BitGreen has created partnerships with various organizations that promote sustainability and eco-friendliness. For example, they have partnered with "WeForest," an organization that helps communities around the world plant trees and restore degraded lands. They also support the "Green World Campaign," which is dedicated to reforesting degraded lands and providing sustainable livelihoods to local communities.

BitGreen Mobile is a mobile-first wallet where users can discover greener opportunities as well as connect with partners to earn and spend rewards in BitGreen. As BitGreen writes on its website, “The world is full of inspiring individuals looking to heal our home, push back against global warming and injustice, and help shape a brighter future.” If they can manage to achieve a mere fraction of their lofty goals, then the world will be that much greener as a result.

Chia (XCH)

Chia, XCH, green crypto

Bram Cohen, inventor of BitTorrent, set up the Chia Network in 2017. A blockchain and smart transaction platform, Chia allows its users to take advantage of available hard drive space to run the decentralized network. Rather than proof-of-work (such as Bitcoin), the Chia Network relies on Proof of Space and Time, which means that users who store a certain amount of data over a certain period of time can earn Chia’s token XCH (itself a response to the extreme energy use required to mine cryptocurrencies).

The Chia network uses a consensus mechanism called "proof of space and time," which requires users to allocate unused hard drive space instead of computational power to secure the network. This means that the process of "farming" new Chia coins is much less energy-intensive than the mining process used by Bitcoin and other proof-of-work cryptocurrencies.

Chia is also designed to be more accessible to individual users than other cryptocurrencies. Unlike Bitcoin, which requires specialized mining equipment to be profitable, Chia can be farmed using a standard computer with a hard drive. This has led to concerns about the potential for hard drive shortages as more users begin farming Chia. Ahead of its May 2021 launch, Chinese coin miners hedged their bets on the then-new cryptocurrency, resulting in hard drive shortages and price surges. Shortages were also reported in Vietnam, with drive manufacturer Seagate having to modify their production to meet demand.

The total supply of Chia is capped at 21 million, like Bitcoin, but the distribution of coins is different. Instead of being released gradually over time through mining, Chia coins are distributed in a fixed schedule over a period of 21 years. This means that the inflation rate of Chia is much lower than that of Bitcoin, which could make it a more attractive investment in the long term. Chia's team has also made efforts to encourage the use of renewable energy sources for farming XCH. For example, they have partnered with companies that specialize in solar energy solutions to create "green" farms that use solar panels to power the hardware used for farming.

Chia’s blockchain transaction platform is called Mainnet and can be downloaded directly from their website, while Chialisp is their newly developed smart contract programming language (reference smart transactions currently available are atomic swaps, authorized payees, recoverable wallets, multisig wallets, and rate-limited wallets). In addition, XCH, which has been referred to as the greenest cryptocurrency, can be mined on Amazon Web Services cloud computing platform. For those of you interested in the platform’s finer points, Chia’s Green Paper provides an immersive micro perspective.

Algorand (ALGO)

Algorand, ALGO, green crypto

Algorand is the brainchild of MIT professor and 2012 Turing Award winner Silvio Micali, who set up the world’s first pure proof-of-stake blockchain-based cryptocurrency platform in 2017 (the test network was launched in 2019). The platform itself supports smart contract functionality and its native cryptocurrency is ALGO.

In terms of its eco-conscious credentials, Algorand does not involve mining. According to their website, “The energy required to run a node in the network is negligible, and can be done on a device as simple as a Raspberry Pi. Compared to other blockchains, digital asset creation and transactions on Algorand result in magnitudes less CO2 emissions, with initial analysis demonstrating around 2 million times less.”

In fact, on 22 April 2021, Algorand announced that its blockchain is entirely carbon neutral. Not one to rest on their (green) laurels, the platform partnered with ClimateTrade, a leader in CO2 emissions transparency and traceability, in order to become the greenest blockchain with a carbon-negative network.

In order to do so, Algorand and ClimateTrade will implement a sustainability oracle which will notarize Algorand’s carbon footprint on-chain for each epoch (a set amount of blocks). With its advanced smart contracts, Algorand will then lock the equivalent amount of carbon credit as an ASA (Algorand Standard Asset) into a green treasury so that its protocol keeps running as carbon-negative. There are 10 billion ALGO and distribution will continue until 2030.

Eco-Friendly Crypto: Honorable Mention

I know what you’re thinking—no mention of Cardano (Ada), IOTA (MIOTA), Stellar (XLM), Nano (NANO), Power Ledger (POWR), TRON (TRX), Tezos (XTZ), Avalanche (AVAX), Polkadot (DOT, or even lightweight Mina ($MINA). Heresy, you say?

With over 4,000 cryptocurrencies available to investors, and more in the offing each day, any list will be incomplete by definition, but below is some data to whet your appetite.

Final Thoughts on Green Crypto

With an increased use of renewable energy, more energy-efficient protocols, and carbon footprint offsetting, we are bound to see new, more sustainable, eco-friendly cryptocurrencies and the digital infrastructure(s) on which they are created and run.

If you’re interested in getting stuck in the weeds, then a review of recent academic articles on the subject of eco-friendly crypto might be in order. “Green FinTech: sustainability of Bitcoin,” for example, takes a holistic approach to the issue, while “Cryptocurrencies on the road to sustainability: Ethereum paving the way for Bitcoin” considers the challenges and opportunities in replicating The Merge on other cryptocurrencies such as Bitcoin.

The salient point to remember is that environmentally sustainable cryptocurrencies and profitability are not mutually exclusive, but rather part and parcel of FinTech’s forward-thinking, revolutionary approach to environmental, societal, and economic issues.

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