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The environmental impact of cryptocurrencies using proof of work and proof of stake consensus algorithms: A
Moritz Wendl1, My Hanh Doan1, Remmer Sassen2
1TU Dresden, Faculty of Business and Economics, Chair of Business Administration, esp. Sustainability Management and Environmental Accounting, Markt 23, 02763, Zittau, Germany.
Abstract:
A systematic literature review is conducted to investigate the environmental impact of Proof of Work (PoW) and Proof of Stake (PoS) cryptocurrencies. Due to the focus of recent research on Bitcoin, an inductive approach has been applied to analyze and cluster the findings of PoW cryptocurrencies into seven aspects that effect the environmental impact of cryptocurrencies: resources, energy consumption, carbon footprint, environmental-related social and economic aspects, policy regulation and subsidization, and electronic waste. Subsequently, interconnections and rebound effects are presented and discussed by synthesizing results from each of the seven aspects into one scenario analysis inspired by the crackdown on cryptocurrency miners in China, 2021. Furthermore, it was observed that proposed policy regulation in literature is strongly focusing on miners. As the profitability of miners globally depends on the price of the PoW cryptocurrency, researchers and policymakers are advised to focus more on investors and third-party services such as regulated exchanges. Thus, identifying and implementing policies that demotivate investment in PoW cryptocurrencies could reduce their prices and the incentive to mine. Ultimately, it was assessed that PoW cryptocurrencies, especially Bitcoin, are historically associated with an ever-increasing environmental impact. In contrary, researchers address PoS as a sustainable alternative that poses a solution to the environmental issues related to PoW.
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