Algorand Tries To Solve Bitcoin’s Environmental Problem


Depending on who you ask, Bitcoin is either a wretched abomination of worthless pseudo-money designed to help criminals and shape-shifting reptilian aliens trade tourists for guns and drugs in pizza shop basements or a perfect, idealistic cure-all for the evils that money and banking have wrought upon the world. While I happen to fall more-or-less in the latter camp, even I have to admit that Bitcoin (BTC) has a serious problem when it comes to its environmental impact — and it’s a problem that another cryptocurrency, Algorand, is working to solve.

Bitcoin’s Carbon Footprint Problem

Bitcoin has gotten a bit cleaner since China banned Bitcoin mining and El Salvador began mining with geothermal “volcano” energy, but there’s no denying that “Bitcoin mining consumes more electricity than Norway” and energy use per transaction is enormous at a time when we need to be doing everything we can to cut energy use.

BTC’s energy use is so bad that Elon Musk felt like he had to step backward from Tesla’s $1.5 billion commitment to the digital coin. “Tesla has suspended vehicle purchases using Bitcoin,” said Musk, in a statement. “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel … cryptocurrency is a good idea on many levels, and we believe it has a promising future, but this cannot come at great cost to the environment.”

The key line there, for anyone who would listen to something a guy who has led several companies to $100 billion valuations, is that one about crypto being a good idea. Tesla is still holding onto most of its Bitcoin, after all, and Elon Musk has been called “the Dogefather” more than once for his public support of Dogecoin (DOGE), which has a significantly smaller carbon footprint than Bitcoin. Still, BTC and DOGE aren’t the only games in town — and Elon’s not the only smart guy. (Editor’s note: Dogecoin was created to make fun of the whole idea of cryptocurrency, but we can leave that discussion for another day.)

Algorand Is Both A What & A Who

Algorand (ALGO) is a fully decentralized, secure, and scalable blockchain which provides a common platform for building products and services for a borderless economy that was founded in 2017 by Silvio Micali, and Silvio is a smart dude.

How smart? In addition to advanced mathematics degrees and PhDs in computer science at UC Berkeley, Silvio teaches at MIT. There, his research won him the Turing Award (in computer science), the Gödel Prize (in theoretical computer science), and the RSA prize (in cryptography), and he is credited with the invention of probabilistic encryption, Zero-Knowledge Proofs, Verifiable Random Functions, and many of the protocols that are the foundations of modern cryptography (emphasis mine).

With that kind of pedigree, you’d expect Algorand to be a solid alternative to other cryptocurrencies. Indeed, ALGO provides almost all of the benefits of Bitcoin — benefits like immutability, transparency, and decentralization — while adding smart contract functionality to its blockchain. It also operates on a proof-of-stake model, which is much more energy efficient consensus protocol than Bitcoin’s proof-of-work system.

“Sustainability has been a core component of Algorand since its inception,” reads a statement on the project’s website. “As the world’s first pure proof-of-stake blockchain, the Algorand network was designed from the ground up to minimally impact the environment. Because its consensus is not based on energy-intensive proof-of-work and requires minimal computational power or electricity … the energy required to run a node in the network is negligible, and can be done on a device as simple as a Raspberry Pi. Compared to other blockchains, digital asset creation and transactions on Algorand result in magnitudes less CO2 emissions, with initial analysis demonstrating around 2 million times less.”

Image courtesy Algorand.

That’s a powerful statement, but the commitment to low-carbon operation doesn’t end with lower power use. The team behind ALGO is doing something more, buying carbon offsets.

Carbon-Negative Crypto

“We understand that the mechanics of measuring the environmental impact of a global, decentralized and widely used blockchain are nuanced and complex,” explains Silvio. “That’s why we are teaming up with ClimateTrade to continue and double-down on our eco-conscious efforts.”

ClimateTrade will implement a sustainability oracle that notes Algorand’s carbon footprint on the blockchain for a given period of time (called an “epoch,” when measured in units of transactions, or “blocks”). The amount of carbon measured is entered into a smart contract, which then locks the equivalent amount of carbon credits as an ASA (Algorand Standard Asset) in a “green treasury,” allowing Algorand to operate with a carbon-negative ledger.

In addition to ClimateTrade, Algorand is also working with organizations like GaiaChainPlanetWatch, and Global Carbon Holding by offering grant support and a technical platform for them to build their technology on. That’s possible because of the nature of smart contracts.

What Smart Contracts DO

“Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met,” according to IBM’s blockchain resource. “They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss.”

The smart people are already imagining how a smart contract could revolutionize the mortgage and loan industries, but I need a simpler explanation. What that IBM quote basically means is that you can run a small program within a block that’s stored on ALGO’s blockchain — and, with clever coding, some surprisingly small programs can make a pretty big impact.

Growth & Promise

So, where does Algorand go from here? Recently, the city of Miami adopted Algorand as a platform to help local companies build platforms for payments and capital markets leveraging blockchain technology, with $25 million in backing from an Atlanta-based company called Borderless Capital.

At the time, much was made of Algorand’s environmental advantages over Bitcoin. ALGO developers are still at work, though, and are projecting that they’ll be able to deliver all the transparency and security that blockchain promises with a total energy use that’s less than 1% of 1% of Bitcoin’s.

Image courtesy Algorand.

The real question is, will that matter? Will enough companies and individuals adopt Algorand — or any other cryptocurrency — to significantly disrupt “traditional money” in the US? Or in Canada? As I type this, ALGO has a market cap of about $13 billion. Sure, that’s a far cry from Tesla’s trillion dollar valuation, but $13 billion certainly isn’t nothing. Indeed, that market cap puts ALGO above Samsung, LG, AsusHertz — even Renault … and it’s still growing. As such, it seems safe to say that Algorand isn’t going anywhere, but what does that mean for you and me?

Editor’s note: This article was updated a bit a couple hours after publishing in order to remove misleading comparisons of Bitcoin and traditional banking in terms of energy use and environmental impact.