How Crypto Exchanges Are Trying To Lower Its Carbon Footprint

Over the years, crypto exchanges have become a vital part of the financial infrastructure and a place to buy and sell crypto easily for millions of traders.  As soon as they became widely used, carbon footprint issues became one of the main concerns for the industry.  Crypto exchanges consume a lot of energy and, therefore, create a large carbon footprint.

In this article, we'll explore various ways crypto exchanges have tried to address that issue and come up with processes and technical innovations that will reduce carbon production.

Transition to Renewable Energy

Many crypto exchanges have made efforts to transition to renewable energy sources.  This has led to the creation of the Crypto Climate Accord, which has put these ideas and goals into concrete and actionable efforts.  The overall plan of the Accord was for 100 percent of the crypto exchanges to be powered by renewable energy sources.

The Accords were signed by over 20 companies working in the crypto sector, but the crypto exchange Ripple is most associated with the effort.  The group has also set a target for the entire crypto industry to become carbon net zero by 2040.

Using Energy Efficient Consensus Mechanisms

Many cryptocurrencies are moving to consensus mechanisms that are less demanding in terms of energy efficiency.  Proof-of-Stake (PoS) or Proof-of-History (PoH) mechanisms require much less energy than Proof-of-Work, which was the first mechanism ever used.

However, the biggest cryptocurrency out there and the one that's most integrated into traditional finance –Bitcoin – is still using Proof-of-Work and, therefore, contributes to the carbon footprint the most.  With the rise of new and innovative altcoins, the approach to environmental issues becomes one of the reasons users choose to go with altcoins rather than Bitcoin itself.

 Programs to Offset Carbon Emissions

Entering into programs to offset the carbon emissions made by the company is common in many industries, and crypto businesses have entered into similar programs as well.  In most cases, crypto businesses such as coins, exchanges, and decentralized finance companies are partnering up with third parties to monitor carbon emissions.

Once the emissions are known, the entity buys carbon credits or offsets.  One carbon credit typically represents one metric ton of CO2 that has been removed from or avoided being released into the atmosphere.  Crypto companies also fund environmental programs such as reforestation or afforestation efforts.

Green Mining Strategies

 Crypto mining is the most costly when it comes to effects on the environment.  This is why many crypto companies have started looking into new protocols and innovative tech solutions that will remain effective but have less of a carbon footprint.  Chia Network takes a unique approach to lower carbon emissions by using a proof-of-space-and-time protocol.

The process functions through a decentralized network of nodes acting as clients and servers connecting with their peers.  XCH tokens that are created this way still haven't taken over the markets, but the bigger players notice their existence.

A Change in Hardware

Many crypto companies have taken a different approach and tried to change the hardware used for crypto mining so that it consumes less energy and, therefore, has less of an effect on the environment.  Efforts have been made in this regard by joined forces of crypto companies.  However, the adoption of such hardware takes time.

However, eco-friendly crypto efforts are here to stay since cryptocurrencies are here to stay.  Future innovation will continue down this path in order to address the needs and values of crypto users, who are, in general, very ecology-minded.

Long-Term Net-Zero Plans

Most crypto companies have long-term plans to eliminate their carbon footprint altogether by the end of 2030.  When those pledges were made, 2030 seemed to be far away, and the world of crypto was smaller.  However, now, when the date is approaching and when cryptos are widely used, the plans seem to be far-fetched.

However, given that the leaders of the industry have made efforts to limit their negative effects on the environment and made promises in this regard, there's growing pressure to deliver.  Many also say that the Accords can be used as a good start for further green efforts.

Creating a Partnership for Sustainability

In 2022, some of the biggest crypto companies partnered up to create an organization called Partnership for Sustainability.  The organization is made to monitor the effect that crypto has on energy consumption and pollution and to work with experts in the area to create a sustainable basis for crypto operations.

A lot has changed since crypto companies started cooperating with traditional finance businesses in the last couple of years.  However, the Partnership still has a role to play as a self-regulating body and as a think-tank advocating for the industry.

Lowering Carbon Footprint per Transaction

Some crypto exchange platforms, such as Avalanche, and some crypto companies, such as Solana, have turned their attention to the carbon footprint of individual transactions made by their users.  This approach is similar to efforts to measure and cut on individual carbon footprint via recycling or reducing reliance on internal combustion vehicles.

Solana was praised for this effort by the Crypto Carbon Ratings Institute, as it lowered the cost of individual transactions to 0.166 watt-hours per transaction.  The protocol used by Solana remained as fast and efficient as the ones that use much more energy per transaction.

Open Source Emission Standard

 At the same time, efforts are made to be open about emission standards and to provide the relevant data as open source for each crypto business.  The data will serve to inform the future efforts made by the businesses and also to make the general public aware.

The belief is that if the general public has accurate and measurable data about the effect of crypto companies, they'll be able to choose which one to use based on the data, among the other features.  There's still a lot of work to be done to make the data understandable to everyday users.

Cloud Mining

Cloud mining refers to the process of mining cryptocurrencies using shared processing power provided by a third-party service.  Many cryptocurrencies have turned to it as an alternative to more energy-consuming mining efforts.  By pooling resources, cloud mining efforts can accomplish more in terms of carbon footprint efforts than the sum of its parts.

Mining generates a lot of heat, which requires effective cooling systems.  Large cloud mining operations can invest in advanced cooling technologies that individual miners might not be able to afford.  At the same time, cloud mining is easier to scale and expand, and that's an important feature as crypto businesses grow.

To Sum Up

 In conclusion, crypto exchanges are increasingly aware of their carbon footprints and are taking significant steps to address environmental concerns.  From transitioning to renewable energy and adopting energy-efficient consensus mechanisms to participating in carbon offset programs, these efforts are crucial for the industry's future.

By forming partnerships and focusing on sustainable practices, crypto companies are committed to reducing their impact on the environment.  As the industry continues to evolve, innovations in technology and collaboration will play a vital role in achieving long-term sustainability goals, ensuring that crypto can thrive while protecting our planet.