How You Can Invest in Eco-Friendly Crypto in 2021
If you want to invest in crypto but care about the impact Bitcoin mining has on the environment, here’s what you can do.
SustainFi September 1, 2021
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Investors around the world love the decentralized nature of cryptocurrency. The value of the crypto market has grown faster than almost all other asset classes like stocks, bonds, and real estate. Today, the global crypto market is worth more than $2 trillion, with about half of that coming from the original cryptocurrency, Bitcoin.
Why is Bitcoin mining bad for the environment?
The development of the crypto space has helped a lot of people make a lot of money. However, one of the common criticisms of Bitcoin is that mining it is not eco-friendly. To mine new coins, powerful computers use a lot of energy to solve complex puzzles. To make matters worse, China remains the number one crypto mining country, and 40% of miners there may be relying on coal. (Coal is the worst-polluting fossil fuel.)
Bitcoin mining uses about 70 TWh of energy per year, which happens to be the energy consumption of Bangladesh, a country with over 160 million people. This level of energy consumption has concerned both crypto traders and environmental advocates. Even Elon Musk revealed that Tesla would stop accepting Bitcoin payments due to Bitcoin’s environmental impact. And the New York Senate has proposed a bill that would prohibit crypto miners from operating in the state until their impact on the environment is assessed.
For cryptocurrency to become the “currency of the future”, as some economists have suggested, environmental issues need to be addressed. Fortunately, you can still invest in crypto without a significant environmental impact.
Make an impact with your money
Option One: Invest in Energy-Efficient Cryptocurrencies
Though Bitcoin is by far the most popular cryptocurrency, there are eco-friendly alternatives. As of 2021, there are nearly 6,000 different cryptocurrencies, some of them designed to have a minimal environmental impact.
Bitcoin miners must use the energy-intensive proof-of-work protocol, which requires powerful computers to solve complex puzzles. More energy-efficient protocols, such as proof-of-stake, are available. With proof-of-stake, computers don’t have to work as hard, and you don’t need as many of them. As a result, other cryptos can be mined with a total energy consumption of less than 1% of Bitcoin’s.
Ethereum, the second most popular cryptocurrency, is currently using the proof-of-work protocol but plans to transition to proof-of-stake soon. This will cut Ethereum’s energy consumption by over 99%. (However, Ethereum 2.0 launch has been repeatedly delayed.)
In the meantime, here are several energy-efficient cryptos you can buy today. Some of these could even be a good choice for Tesla if they find an eco-friendly replacement for Bitcoin.
Created by an Ethereum co-founder, Cardano has recently become the third largest cryptocurrency behind Ethereum and Bitcoin.
Unlike Bitcoin, Cardano uses the eco-friendly, peer-reviewed proof-of-stake protocol called Ouroboros. Its CEO said that the crypto is 1.6 million times more energy-efficient than Bitcoin. Cardano uses just 6 GWh of energy annually, which is “not even 0.01%” of Bitcoin’s annual energy consumption.
While the crypto market crashed in the late summer of 2021, Cardano was more resilient thanks to its appeal to green-minded investors. Further, Cardano is apparently trying to get Tesla to adopt it as the Bitcoin alternative.
As of September 1, 2021, Cardano had a market capitalization of $91 billion.
Stellar Lumens (XLM)
Released in 2014, XLM is an energy-efficient coin that doesn’t rely on proof-of-work or proof-of-stake protocols. Instead, XLM uses the Stellar Consensus Protocol or SCP. The network was designed to facilitate cross-border payments, especially in developing markets. (The Ukrainian government picked Stellar as its partner in the development of a national digital currency.)
As of September 1, 2021, XLM had a market capitalization of $8.2 billion.
IOTA is an energy-efficient crypto designed to facilitate microtransactions between devices. IOTA uses a unique algorithm called the Tangle that requires users to validate two transactions to make a transaction of their own. IOTA has collaborated with organizations like ClimateCHECK, a provider of climate and cleantech solutions.
As of September 1, 2021, MIOTA had a market capitalization of $3.1 billion.
Released in 2017, EOS is another crypto that uses a form of the energy-efficient proof-of-stake protocol. The coin was designed to support large-scale applications. According to EOS, the crypto generates less than 0.01% of Bitcoin’s carbon emissions. In addition, EOS has partnered with ClimateCare to make the coin carbon-neutral by buying carbon offsets.
As of September 1, 2021, EOS had a market capitalization of $4.9 billion.
Tezos is a crypto using an energy-efficient variation of the proof-of-stake protocol. According to Tezos, the annual energy consumption from the Tezos network is over two million times less than that of the Bitcoin network.
As of September 1, 2021, XTZ had a market capitalization of $4.5 billion.
Launched in 2018, ALGO is a sustainable proof-of-stake coin. In April 2021, ALGO pledged to be the greenest blockchain network by going fully carbon-neutral. Apart from the fact that the proof-of-stake protocol does not require much energy, ALGO will use carbon offsets to reduce its carbon footprint. ALGO has partnered with ClimateTrade, which helps companies calculate and offset carbon emissions. Offsets will come from projects like the Southern Cardamom Rainforest in Cambodia.
As of September 1, 2021, ALGO had a market capitalization of $4.0 billion.
NEAR Protocol (NEAR)
NEAR also uses proof-of-stake to secure its blockchain. According to NEAR, the coin is 200,000 times more carbon-efficient than Bitcoin. This coin is now officially carbon-neutral. The minimal emissions from running the proof-of-stake protocol are offset with carbon credits. NEAR has partnered with an organization called South Pole to assess and offset its carbon footprint.
As of September 1, 2021, NEAR had a market capitalization of $2.4 billion.
Nano is a cryptocurrency that is “fee-less, eco-friendly and easy to use, accept and integrate with.”
NANO relies on Open Representative Voting (ORV), a protocol similar to proof-of-stake, making it less energy-intensive. It’s also a cryptocurrency that is on the rise: between January and August 2021, Nano was up over 600%.
As of September 1, 2021, NANO had a market capitalization of $878 million.
Note: When compiling our list, we have focused on the largest “green” cryptocurrencies. Several smaller coins like SolarCoin (SLR), BitGreen (BITG), and Chia (XCH) exist, but many are not available on major U.S. exchanges like CoinBase. It’s also hard to say how secure these coins are.
Make an impact with your money
Option Two: Invest in a Green Crypto Mining Exchange-Traded Fund (ETF)
Although Bitcoin mining does require a lot of energy, its carbon impact is reduced if renewable energy sources like wind and solar are used. There is a new ETF that lets you invest in miners that rely on renewable energy sources.
The Viridi Clean Energy Crypto Mining & Semiconductor ETF (RIGZ) is an actively managed ETF that capitalizes on the interest in both Bitcoin and environmental, social, and governance (ESG) investing. The ETF was listed on the New York Stock Exchange in July 2021.
RIGZ doesn’t buy cryptocurrencies directly. Instead, the fund invests in crypto infrastructure like miners and producers of computer chips. RIGZ investments include:
- Clean energy cryptocurrency miners. Miners invest in mining rigs used to solve complicated mathematical puzzles. In return, they are rewarded with new cryptocurrencies they can sell. To be included in RIGZ, miners must be using renewable energy
- Computer chip (or semiconductor) manufacturers. The ETF also invests in the manufacturers of computer chips used for mining cryptocurrencies, such as NVIDIA and AMD
If the fund grows, it should encourage more miners to use renewable energy sources, such as wind, hydro or solar power, to mine Bitcoin.
RIGZ doesn’t invest in Bitcoin or other cryptos directly. However, you will still have exposure to cryptocurrencies through the fund’s investments in miners and computer chips.
🔔 Read a comprehensive review of RIGZ here.
Option Three: Explore Bitcoin Carbon Offsets
While the rise of green cryptocurrency is great, there are still a lot of people who want to invest in traditional coins, like Bitcoin and Ethereum. If that’s your case, you may want to consider carbon offsets.
You won’t be alone in doing that. Gemini, the crypto exchange run by Winklevoss twins, has been buying carbon offsets for its crypto holdings. Investment firm SkyBridge has partnered with carbon credit supplier MOSS to offset the carbon footprint of its crypto holdings.
Even if you aren’t a professional investor, MOSS lets you offset your Bitcoin emissions with carbon credits. Carbon credits are measurable emission reductions from projects that remove greenhouse gases from the atmosphere. They can do that by planting trees or preserving the rainforest, among other things.
For example, MOSS lets you offset the emissions of one Bitcoin with two MCO2 tokens. Each token offsets one ton of greenhouse gases. (MOSS implicitly assumes that mining each Bitcoin generates two tons of greenhouse gas emissions.) The proceeds fund projects in the Amazon rainforest. One token currently costs $13.
Cryptocurrency has created a wealth of new opportunities for investors but its environmental impact shouldn’t be ignored. However, by choosing climate-friendly coins, investing in a green crypto mining ETF, or buying carbon offsets, you can make your crypto investments greener.