PayPal Proposes Rewarding Bitcoin Miners Using Low-Carbon Energy Sources

Post the fourth Bitcoin halving event last week, the mining rewards have reduced considerably by 50% putting a dent in miner revenues. However, payments giant PayPal has proposed a new incentive scheme for Bitcoin miners who are using low-carbon energy sources.

The goal is to make sustainable Bitcoin mining more economically attractive through this new rewards mechanism. In collaboration with Energy Web and DMG Blockchain Solutions, PayPal’s Blockchain Research Group proposed these “cryptoeconomic incentives” encouraging Bitcoin miners to use low-carbon energy sources.

PayPal believes that these experimental incentives would contribute to further discussion and innovation around Bitcoin. The proposal suggests granting “green keys” to the “green miners”, all linked to their public keys. All the Bitcoin transactions would later prioritize these miners providing lower fees and an extra locked BTC reward sent to a multisig payout address that will only be accessible to green miners.

“Green miners will be incentivized to mine these transactions since they will be the only ones eligible for the additional “locked” BTC reward,” it explained. As a result, profit-driven miners who operate with low-carbon sources will receive incentives in the form of extra BTC rewards.

Leveraging Energy Web’s “Green Proofs for Bitcoin” Platform

As per PayPal’s proposed paper, the solution will leverage Energy Web’s “Green Proofs for Bitcoin” platform certifying miners based on their grid impact and clean energy source. The green miners can register to this platform by sharing their green keys, and thus participate in the incentives program.

Interestingly, PayPal BRG has successfully tested this proposed solution in partnership with Bitcoin miner, DMG Blockchain Solutions Inc. Throughout the test, it sent out numerous low-fee transactions to assess their performance across various levels of on-chain transaction activity. It noted that depending on the volume, these transactions could either face prolonged confirmation times or ultimately be discarded by the network. This scenario would heighten the likelihood of green miners processing these transactions.

Another approach here would be to involve private channels such as smart contracts or Lightning Network. However, the trade-off in this case is a more complex implementation. PayPal BRG concluded by stating:

“The solution outlined here aims to achieve a good degree of decentralization, ease of implementation and trust independence while distributing incentives.”

PayPal has been recently undertaking key initiatives in the crypto space such as releasing its PYUSD stablecoin as well as updating its NFT policy.

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