One of the most pervasive conversations surrounding blockchain technology is sustainability. Blockchain networks — specifically proof-of-work (PoW) networks like Bitcoin — can consume large amounts of energy. Recent estimates suggest that Bitcoin mining is currently responsible annually for an estimated 85 million metric tons of carbon dioxide equivalent (as of April 02, 2024). Even with new blockchain consensus mechanisms proliferating rapidly, Bitcoin’s PoW architecture is likely to persist.
PayPal’s Blockchain Research Group, in a strategic collaboration with Energy Web and DMG Blockchain Solutions Inc. (“DMG”), presents an opportunity to accelerate the clean energy transition for Bitcoin mining. Just like so many other mechanisms throughout web3, we propose the use of cryptoeconomic incentives to encourage desired behavior: Bitcoin miners using low-carbon energy sources in their mining operations. The full research paper, linked below, outlines an opportunity that not only rewards Bitcoin miners for operating with sustainable energy, but also increases the likelihood of participating entities to route on-chain transactions to these specific miners.
Read the full paper from the PayPal Blockchain Research Group.
Incentivizing desired activity with cryptoeconomics
Rational miners are driven by cryptoeconomic incentives. They expect to be rewarded with an asset (bitcoin BTC) that is more valuable than the resources they expended to acquire that reward. Much of blockchain’s history has focused on how to get a group of disparate, individual miners to all perform honestly and responsibly in the maintenance of a decentralized ledger.
Since 2008, Bitcoin has achieved the robust, secure, decentralized, and censorship-resistant maintenance of the ledger with its decentralized miner community. In other words, the fundamental cryptoeconomic structure of Bitcoin and its PoW consensus mechanism has proven successful. Now, the question is whether additional cryptoeconomic incentives can be layered on top of the fundamental PoW mechanism thereby allowing us to encourage more environmentally sustainable actions that we desire as a community.
PayPal’s Blockchain Research Group's partner EnergyWeb has developed a clean energy validation platform to permit Bitcoin miners to obtain low-carbon accreditation for their mining operations. These green miners are associated with public keys (which we refer to as green keys), to which rewards can be distributed. On-chain transactions are preferentially routed to green miners by being broadcasted with low transaction fees, but with some BTC reward “locked” in a multisig payout address. Green miners will be incentivized to mine these transactions, since they will be the only ones eligible for the additional “locked” BTC reward.
PayPal’s Blockchain Research Group hopes that this paper influences preferred behaviors by proposing ways in which fundamental cryptoeconomic incentives can be reapplied to improve and optimize existing, proven, strong networks. Sustainability is a significant topic of conversation for nearly every emerging and established industry in the world, and we aim to support the role of crypto in a sustainable future.
Read the full paper from the PayPal Blockchain Research Group.