A suggestion has been put forward by the blockchain research division of PayPal for accelerating Bitcoin mining’s transition to clean energy.
The payment giant’s Blockchain Research Group partnered with Bitcoin miner DMG Blockchain Solutions and non-profit Energy Web to publish a research paper on the ‘Green Mining Initiative’.
The proposition
It has proposed to encourage miners to opt for low-carbon energy resources via crypto-economic incentives.
The research paper from PayPal outlined the solution, which involves using a validation platform to identify ‘green miners’, such as the ‘Green Proofs for Bitcoin’ that Energy Web has developed.
Public keys of the miners are then provided to a multisig payout address. On-chain transactions that have low transaction fees are broadcasted to preferentially rout the transactions to these ‘green miners’.
These transactions boast an additional UTXO and the multisig payout addresses have some Bitcoin locked in.
The ‘green transaction’ can then be identified by the miners and included in the block, along with a ‘redeem transaction’.
The latter allows them to get the additional BTC reward that has already been included in the multisig payout address.
The incentive
PayPal authors said that the additional Bitcoin rewards would only go to green miners who would include the green transaction and redeem transaction in the mining of the next block.
While these on-chain transactions would not be prioritized by the majority of the miners due to low transaction fees, green miners would have additional BTC rewards as an incentive.
This would increase the possibility of these transactions being routed only to green miners i.e. those who use low-carbon energy resources for mining purposes.
There has been a lot of criticism directed towards Bitcoin because of its mining method, as it is highly energy intensive.
The environmental impact
In recent years, the environmental impact of Bitcoin mining has come under the spotlight. Groups like Greenpeace have highlighted the issue.
The proof-of-work (PoW) consensus mechanism used for mining Bitcoin leads to the consumption of fossil fuels.
A ‘change the code’ campaign was launched by environmental activists in 2022 that was aimed at encouraging the Bitcoin community to replace the PoW consensus mechanism.
They suggested that it be replaced with the proof-of-stake (PoS) model, which is less energy-intensive and has already been employed by other cryptocurrencies, such as Ethereum.
Proponents of Bitcoin have argued that the use of renewable energy could be an incentive via mining and I can also help in stabilizing the energy grids during off-peak hours by scaling operations.
Cornell University conducted a study in 2023 in which researchers found that the shift to renewables could be accelerated via BTC mining.
The debate is also complicated because it is difficult to determine exactly how much energy is being used by the Bitcoin network.
A variety of methodologies have been used for this purpose and there have been assertions that power consumption has been exaggerated.
Many countries are already facing energy issues because of crypto mining activities taking place and are taking steps to curb it.