GCR Sustainability Rating: How sustainable is Cardano?
Updated: Apr 3, 2022
Cardano has risen to become the fifth-largest cryptocurrency since its mainnet launch in September 2017. Many blockchain enthusiasts believe it to be among the most sustainable, ecological, and secure alternatives to Ethereum. We took a closer look.
The sustainability of cryptocurrencies is often assessed from an environmental perspective only. For a meaningful analysis, however, a holistic view is necessary that also includes social and regulatory factors. The GCR Sustainability Rating has therefore examined Cardano for issues in all three sustainability dimensions. Let's start with the easiest one:
How environmentally friendly is Cardano?
Charles Hoskinson, the founder of Cardano, is a pioneer of the consensus algorithm "Proof of Stake" that enables the Cardano project to use 99.99% less energy than Bitcoin or Ethereum.
According to his estimate, the Cardano network requires just 6 GWh to maintain the network for one year, which is in line with our calculations. In contrast, Bitcoin requires 100,000 GWh and Ethereum 75,000 GWh - over ten thousand times more energy than Cardano! It comes as no surprise that Cardano receives the top grade A in our environmental score.
Cardano requires 10,000 times less power than Bitcoin or Ethereum.
Another important reason for the good rating is the energy consumption per transaction. According to our calculations, Cardano's energy consumption is around 0.8 kWh per transaction. This value is significantly higher for Bitcoin at 1,000 kWh and Ethereum at 100 kWh. Because significantly fewer transactions are confirmed in a block with Cardano than with Bitcoin or Ethereum, the energy savings are no longer quite as large here. Other proof of stake cryptocurrencies such as Solana or TRON perform even better in this regard.
How social is Cardano?
The social aspects assess which goals are pursued with the blockchain and how it impacts society. Hereby, low transaction fees and equitable distribution of the asset are crucial to ensure broad accessibility of technology and prevent malicious behavior. At an average of 30 cents per transaction, Cardano is more than 15x cheaper than Ethereum, which had reported average costs of more than $5 over the last 12 months. Not to mention Bitcoin which has an average cost of $10 per transaction, making it 30x more expensive than Cardano.
The transaction costs of Cardano are on average about 30x cheaper than at Bitcoin.
Cardano also gets top marks for an equitable distribution of its coins. There is only one wallet that owns more than 1 % of all Cardano assets. Only Bitcoin is as well distributed as Cardano. Thus, Cardano receives a rating of A- in the social score.
How secure is Cardano?
The Governance score examines how well the decentralized network is diversified by miners or validators, whether there are conflicts of interest, and how secure the technology is.
In Bitcoin, the four largest mining pools currently share well above 50 % of all mined blocks. Theoretically, these pools could together take control of the network. This is very unlikely because it would probably result in a crash of the Bitcoin price which goes against the interests of the mining pools that are being reimbursed in Bitcoins. Nevertheless, the example shows that with enough hashing power it is possible to attack the Bitcoin network, even if the attacker does not own a single Bitcoin.
Unlike Bitcoin, Cardano is not so easy to take over the network with a 51% attack.
With Cardano, the case is different. In contrast to Bitcoin, it has over 3,000 validators. They need to own/stake more than 50 % of all coins to overtake the network. This makes it very expensive or almost impossible to take control of the network by merging multiple staking pools.
Cardano's decentralized network went live in September 2017, making it one of the oldest, largest, and most tested proof of stake algorithms. Since the launch of the Cardano mainnet, there have been no known incidents that cast doubt on its security.
The Cardano Foundation was established to avoid conflicts of interest. The Swiss-based non-profit organization aims to further develop Cardano as a secure, transparent, and sustainable cryptocurrency. Cardano is thus similarly well-positioned as Bitcoin when it comes to governance aspects and consequently receives an equally good score of A in this sustainability area.
Cardano requires 10,000 times less power than Bitcoin or Ethereum and has 15x and 30x lower transaction fees, respectively. The network has been running stably and without any incidents since its launch in 2017. This makes Cardano one of the most environmentally friendly, socially responsible, and secure cryptocurrencies currently available.
Check out the details in the scoresheet.
Please note that we regularly review and update our ratings. It is therefore possible that the scores mentioned in the blog post no longer correspond to the current rating. You can find an up-to-date overview of all ratings at any time at greencryptoresearch.com/ratings.
What is the GCR Sustainability Rating?
The GCR Sustainability Rating is the first ESG rating tailored to cryptocurrencies and adjusted accordingly. It reflects the holistic assessment of a cryptocurrency and is composed of three individual scores:
The GCR Sustainable Rating is a relative ranking, meaning that the best cryptocurrency in each category receives an A rating, while the worst receives a D rating. The overall rating ("GCRS rating") is based on three individual ESG categories. An average score is calculated for each category. The overall rating corresponds to the worst ESG score so that failures in a single category cannot be compensated for by good scores in the other two. Thus, if a cryptocurrency is judged not to be environmentally sustainable, it cannot make up for the poor rating with adequate social standards or good governance.