Business and Technology Reporter in Nairobi, Kenya
Nation Media Group
Ben Mugambi, 26, first decided to invest in cryptocurrencies to beat the lockdown tedium at the peak of the Covid-19 pandemic in 2020. His first escapades in the industry went well and he was certain he would be trading in cryptos for a long time. And for a while, it was his sole source of income.
Initially, Mugambi viewed crypto trading in the same light as other online income-generating activities – like freelancing or ghost-writing.
But his views changed after learning that cryptocurrency mining and trading contribute significantly to global emissions. Even though he still trades because he believes it’s not in his place to minimise the impact of crypto activity on climate change, Mugambi now has another job.
“I’m doing this just to make some extra income. I’m not in it for the environment or anything,” he says.
Studies show that the cryptocurrency industry, still in its nascent stage, is swiftly outpacing many of the traditional top-emitting sectors and significantly contributing to climate change.
In their short history, Bitcoin mining alone has emitted nearly 200 million tonnes of carbon dioxide equivalent (CO2e), according to the Cambridge Bitcoin Electricity Consumption Index, which tracks the real time impact of Bitcoin.
In comparison, Kenya’s total greenhouse gas emissions are currently estimated at only 93.7 tonnes of CO2e annually and are projected to rise to 143 tonnes of CO2e by 2030, according to the Ministry of Environment and Forestry.
Agriculture is Kenya’s largest emitter, contributing to 40 percent of Kenya’s emissions, while deforestation, energy use and transport, jointly contribute to 18 percent of emissions.
Like fossil fuels
According to a 2022 study by the University of New Mexico in the US, Bitcoin mining has nearly the same climate impact as burning fossil fuels like gasoline and much higher than cattle and poultry farming or gold mining, when their climate damages are calculated as a percentage of their market value.
The study found that on average, every $1 of Bitcoin mined between 2015 and 2021 resulted in about $0.35 worth of climate damages.
The same value of gasoline creates $0.41 in climate damages, while $1 of beef produced $0.33 in damages.
Every $1 of gold mined causes climate damages worth $0.04.
So, why is Bitcoin’s climate impact so high?
Bitcoin, the first-ever cryptocurrency and by far the most valuable and popular, is built on the blockchain distributed ledger technology.
Blockchain is a collection of records of digitally signed transactions, with synchronised copies stored in computers all over the world. This means that for someone to mine or produce cryptocurrencies built on blockchain, the transaction has to be verified by millions of computers across the globe, resulting in very high energy consumption per transaction.
The mining process involves several computers around the globe competing to a solve a complex mathematical problem.
Whoever solves it first is awarded a coin, and several other computers must verify that the solution is correct. This is known as a ‘Proof of Work’ (PoW) mechanism and involves immense energy consumption, hence the high carbon footprint.
Digiconomist, an organisation that tracks the unintended consequences of digital trends, estimates that a single Bitcoin transaction consumes 494.98 kilowatt-hours of electrical energy. This is more than double the amount of electricity one Kenyan uses for a year.
Every Bitcoin transaction also emits about 0.276 metric tonnes of CO2e, same as 611,892 credit or debit card transactions.
Its climate implications notwithstanding, millions of Kenyans, like Mugambi, depend on the blockchain industry as a source of livelihood or to supplement their incomes. There are currently about four million Kenyans who own and trade cryptocurrencies, according to blockchain research firm Chainalysis.
Across East Africa, Chainalysis estimates that there are about 12 million crypto owners, most of whom depend on them as a source of livelihood and a means of wealth creation.
Elsewhere in the world, crypto is only a means of diversifying investment portfolios, says Chainalysis’ latest “Geography of Cryptocurrencies” report.
Besides those trading cryptocurrencies, the sector has directly employed thousands of people across the region.
David Gitonga who runs Kanga Labs, a Nairobi-based consultancy firm specialising in the blockchain industry, has for the last five years made a living solely off the industry and he is convinced there’s no work for him in any other sector.
“I think now I’m already too entrenched in the blockchain industry and I don’t think I can shift to another industry,” he says.
Yvonne Kagondu, co-founder of Internet Computing Protocol (ICP) Nairobi hub – a blockchain innovation incubation centre, has never had another source of income outside the blockchain industry.
Besides her work at ICP, she freelances as a publicity and marketing adviser for blockchain companies and organises events in the sector. She is also the founder of the Kenya Blockchain Ladies Decentralised Autonomous Organisation, a lobby group for women working in the industry.
“I like working in the blockchain industry because it is very futuristic and I think it’s ahead of many sectors,” she says. “I also get to interact with people from all over the world and it gives me a flexibility I can’t get in any other sector.”
Cost vs benefit
Both David and Yvonne know the negatively effects of some cryptocurrencies on the environment, but this doesn’t influence their choice of projects.
“I think the climate impact of cryptos is a cause for concern across the world, but I also believe the industry is already doing something to limit the impact,” argues David.
“It’s true that Bitcoin mining has a heavy carbon footprint, and I think there’s enough evidence to prove it, but according to me, its contribution to global emissions is relatively low compared to other sectors,” says Yvonne.
Many stakeholders in the industry share these sentiments, mostly indifferent about the environmental impact of crypto mining. Some argue that the climate impact is a small price to pay compared to the welfare gains.
There are very many carbon-emitting industries in the world, but they’re hardly talked about because of the value they create for human development,” argues Apollo Sande, East Africa’s business development manager for Luno, a crypto trading platform.
“If we talk about Bitcoin consuming this much energy and having this much carbon footprint, we need also to look at its potential value to humanity and weigh it against the cost,” Sande adds.
So, what value do cryptocurrencies like Bitcoin create for humanity?
According to Sande, “the cost of financial transactions in the blockchain sector is a small fraction of what it costs to transact using traditional credit cards or banking system.
Using cryptos, therefore, can ease and improve remittances to Africa.”
Besides easing remittances and transaction costs, cryptocurrencies are also credited for offering speedy transactions, and high security of funds.
They also act as a hedge against inflation and currency depreciation for some people. The technology can also be used to build other applications that can advance transparency and efficiency in several sectors.
Blockchain was among the 17 emerging technologies that the United Nations Conference on Trade and Development (UNCTAD) in March this year said can help leapfrog developing countries into economic prosperity.
But can the climate impact of the industry be minimised?
Tim Mungai, a crypto trader and enthusiast, believes there’s an alternative way of trading and mining cryptocurrencies that is more energy efficient. When he found out about the heavy carbon footprint of Bitcoin mining and trading, he decided to shift to a blockchain alternative known as Hedera, which uses a different method to verify transactions and hence does not require as much energy.
“Hedera uses a system known as ‘Proof of Stake’ (PoS) to verify transactions. Unlike blockchain’s energy-intensive PoW, Hedera transactions need not to be verified by millions of computers across the globe, but just one with the highest ‘stake’,” he explains.
In the PoS mechanism, users in the network are chosen to create new blocks and validate transactions based on the amount of cryptocurrency they hold and ‘stake’ as collateral.
Those with a higher stake are more likely to be chosen by the network, hence less energy is required to complete transactions. PoS has been proven to be more environmentally sustainable than PoW.
According to Digiconomist, every transaction on the Hedera network consumes only 0.001 kWh of electrical energy. Because of its low energy usage and less carbon footprint, efforts to green the crypto industry are mostly centred on transition to the PoS mechanism.
Last year, Ethereum, the second most popular crypto network after blockchain, transitioned to PoS to – among other reasons – improve its climate efficiency. However, this move didn’t go well with many crypto enthusiasts who claim the PoS mechanism limits decentralisation, beating the entire purpose of cryptos.
Ray Youssef, founder and former CEO of Paxful, a popular peer-to-peer crypto trading platform, last year removed Ethereum from the platform, saying the transition rendered it “essentially a digital form of fiat.”
Bitcoin enthusiasts, like Youssef, argue that the PoS mechanism, by limiting decentralisation of cryptos, goes against their essence, which was to ensure there is no single entity or person that controls a currency.
“In a proof of stake system, the owners that stake more earn more and as time goes, more wealth is distributed amongst a few, and so is the control,” argued Rufas Kamau, lead markets analyst at Nairobi-based financial markets broker FXPesa.
“While a decentralised peer-to-peer cash system like bitcoin is designed to operate without interference from government, a PoS system makes a blockchain subject to regulations.”
Renewable energy
However, Vijay Ayjar, Luno’s vice president for corporate development told The EastAfrican that there’s no evidence that the PoS system makes blockchains any less decentralised.
“These are two very different issues, and one is not related to another,” said Ayjar.
Because of the controversy surrounding the PoS system, several cryptocurrencies have stuck to the PoW system like Bitcoin.
Out of about 15,000 crypto coins currently available, 2,952, about 20 percent, still use the PoW mechanism. Miners and minters of these coins say it’s better to use renewable energy in mining rather than transition to the “less decentralised” PoS system.
According to a survey by the Bitcoin Mining Council, released in October 2022, 59.5 percent of the total energy used to mine Bitcoins come from renewable sources. Gridless, a Bitcoin mining plant in Kenya, is among those that use entirely clean energy in the process.
Gridless’ chief operations officer Janet Maingi told The EastAfrican that their plant in Murang’a, central Kenya, utilises hydroelectric energy, produced by minigrids.
This, she says, helps small energy companies stay afloat and improves the security of the blockchain network by adding the computational power from Africa to the system.
Maingi said Gridless mines only Bitcoin because “there is an open market for it that has stood the test of time for 14 years now, which gives us confidence in the future demand.”
Bitcoin is considered to be more profitable than other cryptos. For example, it currently trades at about $26,500, more than 20 times higher than its closest rival, Ethereum, which is currently worth about $1,800. Hbar, Hedera’s native coin, has never traded above $0.5.
However, some experts argue that the only way to minimise the climate impact of cryptocurrencies is to mine and use only those that require less energy to transact like Hedera and Ethereum.
John Walubengo, a lecturer of information, communication and technology at the Multimedia University of Kenya, argues that since there are many distributed ledger technologies (DLTs) like Blockchain which offer similar utility, it is better to use the more environmental friendly ones that use the PoS system.
Walubengo, who also sat in the Distributed Legders Technology and Artificial Intelligence Taskforce set up in Kenya in 2018 to explore the novel technologies, told The EastAfrican that in their proposals to the State, the team had recommended further exploration of other DLTs but not blockchain due to its climate impact.
“We did not intend to or envision using the Bitcoin blockchain, so its climate impact wasn’t an issue,” he said. “Other DLTs, like Ethereum, are a less energy-intensive and have little to zero negative impact on the climate change or the environment.”
But as the prominence of Bitcoin grows, hopes of successfully regulating the sector to minimise their impact remain grim as stakeholders insist on self-regulation.
“Cryptos are hard to regulate because by their technical design, they are not supposed to be regulated,” said Walubengo.
In a recent whitepaper, the World Economic Forum said it will be near-impossible to successfully regulate the crypto industry unless there’s global synergy by regulators from across the globe.
For now, the sector continues to ‘self-regulate’ in several countries.
