Cryptocurrency is not a new concept but it has been around for quite some time. However, it’s recently become mainstream. With the influx of new users, comes an increased need for energy consumption, causing this cryptocurrency environmental impact. But first, let us understand what is cryptocurrency about, how to mine cryptocurrency and the environmental impact of cryptocurrency.
What is cryptocurrency?
Cryptocurrency is digital money that works through cryptography — a kind of security feature that makes it hard to counterfeit. It’s called a cryptocurrency as it employs cryptography to secure transactions and control their creation. Cryptography is basically a way of encrypting data so that only authorized parties can access it. Consider this: you put your money in a safe deposit box at the bank. Except, instead of using keys, you use math problems that are virtually impossible for anyone without access to solve.
Cryptocurrencies are a great way to make payments across borders. They’re also a great way to send money from one person to another without the need to use banks or other financial institutions.
Bitcoin was the very 1st cryptocurrency, created in 2009 by an anonymous computer scientist named Satoshi Nakamoto (pseudonym). But, there’s much more available in the market, today.
Currently, one Bitcoin is valued at about $30,527 (US). Its massive appreciation and volatility are the biggest incentives to mine more Bitcoins.
What is crypto mining?
Mining cryptocurrencies requires powerful computers to solve complex math problems (called hashes). Then, they add blocks to the blockchain, which is where all transactions get recorded. If & when one completes any of these puzzles, they get rewarded with new bitcoins or other currencies, depending on how much computing power was contributed.
Junior Theomou, founder of Miners DeFi, a Bitcoin company that uses hydropower stated, “Every time more people mine more Bitcoin, the competition rises. The more machines on the market, the more difficult it becomes to mine Bitcoin. So now, you have a competition going on, with more and more machines, mining and competing within each other.” That’s the simplest way to understand how to mine cryptocurrency.
Bitcoin and crypto mining explained
Since cryptocurrency does not fall under the control of a particular central authority, the blockchain must fall back on users to evaluate transactions and update the blockchain with new information. To stay protected, the blockchain has implemented various mechanisms for this verification:
- Proof of work – users validate transactions in this most-used mechanism.
- Proof of stake – miners use crypto that they pre-own for mining rights.
- Proof of burn – a combination of the 2 mechanisms, mentioned above.
- Proof of capacity -uses empty storage space on a hard drive device for validation.
- Proof of elapsed time – follows a lottery method to decide blockchain updates, making it quite random.
However, there’s a downside to this! The crypto mining process utilizes:
- Powerful, big computers that compete to validate transactions in exchange for coins.
- Immense amounts of electricity are needed to power such complicated algorithms.
- Non-renewable sources of energy such as fossil fuel and coal are used.
This makes us wonder: What is the impact of cryptocurrency on society and the planet?
Is cryptocurrency environmentally friendly?
The environmental impact of cryptocurrency is massive – it takes a ton of energy to store data and manage such transactions. Not to mention that the ‘crypto mining process’ itself is very energy inefficient.
‘Approximately 40 billion pounds (lbs) of carbon dioxide emissions are caused by Bitcoin mining, in the US alone.’ – Business Insider
And since most electric companies still rely on fossil fuels as their primary source of power, it’s becoming evident that cryptocurrency’s environmental impact is adding to the climate crisis.
A study by The University of Cambridge states that Bitcoin utilizes 132.48 TWh (terawatt-hours) per year, which is more than the energy consumed by individual countries like Argentina, Malaysia, Norway, or Sweden. Another tidbit of information: The carbon dioxide emissions caused by bitcoin will keep changing, based on how much energy is used.
After China banned cryptocurrency mining, the US (which contributes to 35.4% of Bitcoin mining) produced .85 lbs of CO2 per kWh. This resulted in almost 40 billion pounds of carbon emissions from US Bitcoin mining alone.
Environmental impact of cryptocurrency
Cryptocurrency isn’t going anywhere, but it does have an opportunity to become a truly sustainable currency. Various efforts are being made to minimize the carbon emissions from crypto. 250 signatures were collected from individuals and organizations, for the Crypto Climate Accords. These signatories have committed to bring down their carbon emissions to net-zero by 2030, and want to eventually, decarbonize the whole cryptocurrency sector by 2040.
There are already a few crypto coins that don’t require mining. This removes the incredibly inefficient and complicated calculations, currently being used to mine them. Transitioning the servers to operate on renewable energy sources is the next step to creating a sustainable currency that we can share around the globe.
Green eco-friendly cryptocurrency ahead
Ethereum, the second-largest crypto player in the market, has plans of changing to proof of stake mining in the future. Most other smaller currencies often appear to have a lower carbon footprint, but that’s simply because they have fewer transactions. These ‘green cryptocurrencies’ seem to be the most efficient in terms of their energy requirements:
- Algorand (ALGO) – In April, they declared their blockchain to be entirely carbon-neutral.
- Chia – an example of a sustainable crypto coin designed to be less energy-intensive.
- IOTA – uses Tangle, an alternative form of technology that does not require miners.
- Cardano – uses Ouroboros, where users purchase tokens to join the network, saving significant energy wastage.
- Nano – follows “account-based confirmation” (ABC), which eliminates miners and reduces energy usage by up to 94% less than bitcoin mining!
- Solarcoin – rewards generators with solar coins, thereby promoting the creation of solar energy.
- BitGreen – an eco-friendly green alternative to bitcoin.
Looking for more ways to bank green? Check out these eco-friendly cards that help you, while helping the planet.
And, to sum up our ‘money talk’ today…
The most glaring environmental impact of cryptocurrency is the vast quantity of resources utilized in the crypto-mining process. However, these alternative eco-friendly cryptocurrencies that have a lesser effect on the planet, could be the answer to all of your cryptic crypto questions.