Proof-of-work versus proof-of-stake coins as possible hedges against green and dirty energy

This article examines whether high- and low-environmental impact cryptocurrencies play a role as hedging instruments for green and non-green energy instruments. We differentiate between cryptocurrencies with two types of consensus mechanisms, proof-of-work and proof-of-stake, which reflect the energy demand used for the coins’ confirmation. We obtain volatilities and dynamic conditional correlations from stochastic volatility models and apply them to calculate hedge ratios. Based on the sample from 15 January 2019 to 15 September 2022, we find that clean coins provide equally good protection, measured by the hedge effectiveness, as compared to dirty coins. Yet, in each case, such effectiveness was time-varying and insignificant in some periods. Overall, cryptocurrencies are more effective hedges for oil than for clean energy assets. •We study the chances of hedging oil and clean energy with clean and dirty cryptos.•We apply stochastic volatility models.•We analyse the hedge effectiveness of two-asset portfolios.•Clean cryptos offer equally effective hedge opportunities as dirty cryptos.•Crypto-hedge is more effective against oil than against clean energy.