Interested in investing in crypto but concerned about the carbon footprint and electricity consumption concerns raised by critics?
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By now almost everyone has heard people talk about . Just to power a single BTC transaction takes over worth of electricity – enough to boil 1,500 kettles. But it’s not just bitcoin that has this problem. Other cryptocurrencies that also utilize the same (PoW) consensus mechanism face the same issue.
As a growing number of investors place more value on companies that emphasize environmental, social and governance principles (ESG) – especially the environmental part – makers of cryptocurrency may soon have to answer the question: Is it possible for crypto to go green?
Increasing awareness of crypto’s energy consumption, pressure from highly influential people like Elon Musk (who due to the crypto’s environmental impact) and are pushing the crypto industry to adapt.
In response to these events, new and existing blockchain projects are exploring everything from migrating to less energy-intensive validation systems to exploring renewable energy-based mining. Ethereum is perhaps one of the most prominent examples of a leading cryptocurrency project that is to a proof-of-stake () system, with an aim of reducing its overall .
Unlike PoW, PoS selects validators based on how many of the project’s native tokens they lock away in a staking smart contract. The more tokens a person locks away, the greater the chance they have of being picked by the protocol to add new data to the blockchain.
Similar to mining, chosen validators receive an amount of newly minted tokens as a reward for their participation. One of the biggest benefits to this system over crypto mining is the hardware requirements are significantly lower, meaning more people can become validators. This, in turn, increases a project’s decentralization and further improves the network’s security. It also has the added benefit of reducing the amount of energy required to power the network.
There are also growing financial incentives to improve the carbon footprint of cryptocurrency as in investors’ decision-making process and regulators increase their focus on
Developers and crypto advocates are making efforts toward sustainability for the blockchain and crypto ecosystem. Organizations like the , for example, are working toward a goal of having all blockchains powered by renewable energy by 2025, and have even produced a for tallying the environmental impact of cryptocurrency. In a recently released , the Bitcoin Mining Council surveyed 32% of its network and claimed its users were mining with a 67% renewable energy mix.
Several factors affect the sustainability and environmental impact of a cryptocurrency. Energy use is one of the most often cited, but it isn’t just a matter of which cryptocurrency uses the most power. You also have to take into account what combination of sources that power comes from.
How many mining operations are powered by renewable energy sources, if any? What validation system do they use? How much physical equipment is required to mine new coins?
Mining operations like have repurposed unused conventional power plants or excess gas from drilling that usually gets burned off to power mining operations. Critics have pointed out, however, that this doesn’t eliminate harmful emissions – it just to a different industry and could incentivize further drilling.
Some newer cryptocurrencies have incorporated renewable energy into their operational model, pairing it with alternative validation methods to create a token that uses a lot less energy than its predecessors.
These are just a few of the new cryptocurrencies being developed with sustainability in mind.
There have also been attempts to use solar or wind farms to power mining entirely with renewable energy. Houston-based tech firm Lancium, for example, plans to pour $150 million into renewable mining plants in 2022. And while this is laudable in theory, it might not be financially possible to construct renewable plants to power a cryptocurrency that could unexpectedly . Bitcoin’s value tends to stay high even as it swings, but other cryptos might not be able to justify the cost of entirely new energy plants simply to mine them.
is a PoS cryptocurrency built on a peer-reviewed blockchain, developed by one of the co-founders of Ethereum. People buy units of Cardano to become members of the network instead of mining new coins, meaning it uses orders of magnitude less energy than something like Bitcoin. This structure also lets Cardano scale up to meet increased demand without a stratospheric increase in power consumption.
is an energy-efficient blockchain network that uses its cryptocurrency lumen (XLM) to facilitate global payments. Its consensus mechanism operates faster than proof-of-work and even proof-of-stake, relying on a group of trusted nodes to authenticate transactions. People can trade fiat and cryptocurrencies through the Stellar network, and use it as a way to send things like remittance payments across borders without incurring steep fees or lengthy transaction times.
is another low-energy crypto that’s been around since 2015. It doesn't rely on mining, instead using “blockchain lattice” technology that creates user blockchains for everyone on the Nano network. Transactions are confirmed by Open Representative Voting (ORV), where representatives voted in by members of the network act as validators. It lets users transact peer-to-peer on their own blockchains instead of having to use the main network blockchain, cutting down on time and energy.
is a cryptocurrency that could rival major payment processors like Visa in terms of transactions per second while using much less energy than bitcoin. Transactions are processed in parallel instead of linearly, making Hedera faster than legacy cryptocurrencies like bitcoin with the company claiming up to 100,000 transactions per second can be processed through its network. The makers of Hedera are also using its network to build sustainability projects like their energy tracking software.
uses the power from idle computers connected to its network for scientific research through the . It uses proof-of- stake and users get rewarded with a proof-of-research algorithm. Gridcoin has been around since 2013, and some of the projects currently using power from its network include mapping the Milky Way galaxy via .
Advancements in consensus mechanisms and a focus on utilizing renewable energy sources would lower the overall environmental cost of cryptocurrency and blockchain networks with wide adoption. There is still the problem of from legacy mining operations to deal with, but non-PoW cryptocurrencies would drive down the demand to build newer and larger mining rigs in the future, potentially reducing that waste.