The Cryptocurrency Carbon Problem and Network Dependency
Bitcoin investors know they face a challenge in managing the cryptocurrency’s carbon footprint and they are searching for legitimate ways to reduce emissions. Viridian offers the only solution that creates incentives for the long-term shift to more renewable power and reconciles the Bitcoin network’s CO2 emissions with both the stock of existing coins and the flow of new coins.
Bitcoin Value and Energy Use
The foundation of all cryptocurrencies is a consensus mechanism to construct an agreed-upon history of transactions without relying on a centralized coordinating authority. Bitcoin establishes an adversarial collaboration between “miners” who validate transactions onto a public ledger by solving a complex cryptographic algorithm through computational brute force. Miners are rewarded with new coins and transaction fees.
The value of all Bitcoins (i.e. existing stock) is dependent on the continued mining of new Bitcoins now and in the future (i.e. the ongoing flow) to constantly validate the ledger. Cryptocurrencies’ “network dependency” makes them unique amongst investment assets. This contrasts with precious metals, for example, which are largely maintenance free and do not degrade over a historical time horizon: An ounce of gold mined 10 years ago does not require continued gold mining to retain its value.
Bitcoin’s “network dependency” means that Bitcoin holders are each responsible for their share of the network’s ongoing CO2 emissions, not just for the emissions from mining the coins they own. Millions of early Bitcoins were mined using negligeable resources but 2021’s new coins are forecast to consume 100TWh of electricity. Because the mining reward halves every four years and the algorithm difficulty evolves with the global hashrate, the Bitcoin network’s electricity consumption will increase dramatically in the future.
Switching to More Renewable-Powered Mining
At Viridian we believe that if there is a cleaner way to operate, miners should switch to it. Viridian rates cryptocurrency miners for their CO2 emissions by issuing ViridianZero tokens to them for each coin they mine using renewable power. Miners can then sell these tokens and directly enhance their margins. Investors wanting to ensure that their cryptocurrency holdings are not contributing to climate change can buy and retire either ViridianZero tokens or carbon offsets. The Viridian Foundation will certify that CO2 mitigation has been performed each quarter to cover a stated number of Bitcoins.
The Bitcoin community today is free-riding on the positive actions of cleaner miners. Letting miners instead monetize their renewable power, just like a carbon offset, changes the incentives for the whole mining industry. Changing incentives changes behavior — Viridian lets the global Bitcoin community drive the transition to zero (not “net zero”) carbon emissions.