Cryptocurrencies future carbon footprint : An exploratory scenario analysis of cryptocurrencies' future energy consumption and carbon emission.

Sammanfattning

Since the creation of Bitcoin, the virtual currency has attracted the attention of many people and is now a household name synonymous with cryptocurrencies. Today, many thousands of different variants of cryptocurrencies exist, and more are being launched each day. The increase in popularity over the recent years has made them grow exponentially in value but at the same time also created a significant increase in energy consumption. Many of the cryptocurrencies we know today are based on Proof of Work, which is very energy intensive. There are also new and upcoming currencies based on alternative algorithms, such as Proof of Stake, which can considerably reduce the energy consumption of cryptocurrencies. However, Proof of Stake has not been proven to be as resilient and secure as Proof of Work. This study explores the future energy consumption and carbon emission of cryptocurrencies and reflects on their sustainability via exploratory scenario analysis. It includes three scenarios. Scenario 1 – Business as usual is the reference scenario. Scenario 2 – Change in the market, is based on the possibility of the market naturally switching over to PoS. Scenario 3 – under regulation is based on the possibility of a ban of PoW within the EU. The results of this study indicate that the current emissions might be much lower than previously considered and that they might only be 30 percent of what had previously been reported. The fact that the emission is lower today does not mean that they will be sustainable in the future. Suppose Bitcoin and Ethereum energy consumption continues to grow as it has been doing for the last two years. In that case, the combined electricity consumption of the two currencies will have the possibility to surpass 650 TWh, which is an increase of over 300 percent from today's estimates. Banning Proof of Work within the EU would not yield the desired outcome of reducing carbon emissions but would instead increase carbon emissions. A continually growing Proof of Work based network, as it is used today, cannot be seen as sustainable. The recommendations to both industry and policymakers are to find and facilitate areas where Proof of Work would have the possibility to provide added value to society.