The blockchain research division of payments giant PayPal has proposed a fix that aims to “accelerate the clean energy transition for Bitcoin mining.”
PayPal’s Blockchain Research Group, in partnership with non-profit Energy Web and Bitcoin miner DMG Blockchain Solutions, has published a research paper on the “Green Mining Initiative,” which proposes using cryptoeconomic incentives to encourage miners to use low-carbon energy sources.
The solution outlined in the PayPal research paper involves identifying “green miners” using a validation platform such as Energy Web’s “Green Proofs for Bitcoin.” The miners then share their public keys with a multisig payout address.
Transactions are preferentially routed to these “green miners” by broadcasting on-chain transactions with low transaction fees; an additional UTXO is attached to these transactions, with some Bitcoin locked in the multisig payout address.
Green miners can then identify and include the “green transaction” in the block, alongside a “redeem transaction” that enables them to receive the additional BTC reward set aside in the multisig payout address. According to the PayPal authors, “only the green miner who includes the green transaction, redeem transaction and successfully mines the next block” will receive the additional Bitcoin reward.
The idea is that while the low transaction fees would dissuade the majority of miners from prioritizing these on-chain transactions, green miners would be incentivized to do so because of the additional Bitcoin reward—thus increasing the likelihood that on-chain transactions will be routed to green miners.
Bitcoin and the environment
Bitcoin’s environmental impact has come under the spotlight in recent years. Groups such as Greenpeace have argued that the cryptocurrency’s proof-of-work consensus mechanism, in which miners solve energy-intensive cryptographic problems in order to validate blocks on the network, encourages the consumption of fossil fuels.
In 2022, environmental activists launched a “change the code” campaign aimed at encouraging the Bitcoin community to replace Bitcoin’s proof-of-work consensus mechanism with the less energy-intensive proof-of-stake model employed by other cryptocurrencies such as Ethereum.
Bitcoin’s proponents instead argue that mining could incentivize the use of renewable energy and stabilize energy grids by scaling operations during off-peak hours.
For example, a 2023 study by Cornell University researchers found that BTC mining could accelerate the shift to renewables by using energy to mine Bitcoin during the pre-commercial phase, before projects are connected to the grid.
The debate is further complicated by the question of exactly how much energy the Bitcoin network is using, with different studies employing a variety of methodologies to reach their conclusions.
In September 2023, for example, the Cambridge Centre for Alternative Finance implemented a major update to its Bitcoin Energy Consumption Index, concluding that previous estimates of the network’s power consumption were exaggerated.
Edited by Stacy Elliott.
