PayPal’s reward system for ‘green miners’

PayPal’s Blockchain Research Group has joined Energy Web and DMG Blockchain Solutions to support “sustainable” Bitcoin mining. According to the article, the collaboration offers “an opportunity to accelerate the transition to clean energy” using crypto-economic incentives.

PayPal Investigation into Bitcoin Mining

In a recently published article, PayPal’s Blockchain Research Group (BRG) proposed “the opportunity for a more sustainable future” in Bitcoin mining. The study found that as of April 2, data estimates annual emissions of more than 85 million tons of carbon dioxide, due to Bitcoin’s Proof-of-Work (PoW) consensus mechanism:

The reason behind this significant impact is the proof-of-work (PoW) consensus mechanism that secures the Bitcoin network. At PoW, miners participate in a competitive race to find solutions (i.ecryptographic hashes) for Bitcoin blocks, which requires powerful computer hardware such as ASIC machines.

This race and the demand for robust computing power require significant electricity. Miners’ use of carbon-based energy sources “consequently results in the underlying greenhouse gas emissions footprint of the Bitcoin network.”

As a solution, PayPal’s BRG aims to “drive desired activity with crypto economics” to improve and optimize “existing, proven strong networks.” In addition, the company aims to support “environmentally responsible” mining and encourage other miners to switch to cleaner energy sources.”

Bitcoin Rewards for ‘Green Mining’

The article proposes routing on-chain transactions to ‘green miners’ via low transaction fees with a BTC reward ‘locked’ into a multisig payout address. The rewards would serve as an incentive to mine these transactions as only green miners would be eligible to receive them.

The solution is based on identifying miners who use low-emission energy sources. Once identified, their public keys, also called ‘green keys’, would be used to reward miners with Bitcoin in a trust-independent manner via a ‘1-of-N multisig script.” As a result, the payout address would allow the miners with green keys to claim the rewards.

Proposed solution to incentivize green Bitcoin mining. Source: PayPal's BRG

Providers like Energy Web would help identify the green miners and bring them on board the solution. The nonprofit offers a “Green Proofs for Bitcoin” initiative that promotes transparency and “supports alignment between Bitcoin mining and global decarbonization efforts.”

Miners would apply for and share their sustainable mining certifications through the Green Proofs for Bitcoin validation platform.

Moreover, the proposed solution has been successfully tested with DMG. The company broadcast multiple transactions at low fees to test how effectively they would operate under different levels of on-chain transaction volumes.

Depending on the transaction volume, the cheap transactions would take a long time to be confirmed or eventually removed by the network. This would increase the green miners’ chances of picking them up.

According to the article, the tradeoffs were “acceptable,” but alternative solutions could be evaluated:

It is possible to design alternative solutions where transactions and rewards can be sent to miners through a private mechanism instead of through the public mempool.

Exploring technologies such as smart contracts or the lighting network is also suggested as an alternative way to tackle the problems. However, they may come at the cost of ‘trust dependency and more complex implementation’.

However, it is worth noting that Bitcoin mining is controversial. While many legacy companies, such as PayPal and others, have targeted the grid due to its perceived intense electricity use and carbon emissions, other research has pointed to the growing use of renewable energy and the low carbon emissions the emerging industry produces, as shown in the diagram below.

In a Forbes article, analyst Jonathan Buck noted:

the CCAF has found that the bitcoin industry uses a significant amount of renewable energy, sometimes more than half depending on the jurisdiction. This is a testament to the industry’s commitment to sustainability and its potential role in the green revolution.

BTC is trading at $65,972.43 on the one-day chart. Source: BTCUSDT on TradingView

Featured image from Unsplash.com, chart from TradingView.com