- While Bitcoin mining has been happening for over a decade, its harmful environmental impact only became known to the masses this year
- An alternative mining solution to the energy consuming proof-of-work consensus is proof-of-stake (PoS)
- The second largest cryptocurrency, Ethereum, is currently in the middle of a much-anticipated upgrade, where it hopes to change its mining consensus from PoW to PoS
As the popularity of cryptocurrency has increased over the past couple of years so too has concerns regarding its impact on the environment.
In particular, Bitcoin’s mining practices raised eyebrows earlier this year when it was found that its energy usage was equal to that of some small countries.
Since then, there’s been a pull towards cryptocurrencies whose mining practices don’t demand so much energy.
Can Crypto Ever Go Green ?
But is it enough? And can digital currency exist in a world that’s so conscientious of its impact on the environment?
How Crypto Impacts The Environment?
While cryptocurrency is a digital asset, its energy consumption is the main offender when it comes to environmental concerns.
More specifically, the proof-of-work (PoW) mining method, which is the oldest mining method and the method Bitcoin has used since its launch in 2009.
PoW requires powerful computers to solve complex algorithms in order to then release a coin. This is how Bitcoin is mined and why it has received so much criticism from environmentalists.
The energy required to mine Bitcoin is astounding. A study done by The University of Cambridge earlier this year found that Bitcoin mining uses the same amount of electricity as some small countries on an annual basis.
Additionally, a Deutsche Bank expert stated that if Bitcoin were a country, it would use around the same amount of electricity a year to mine as Switzerland does in total.
Image Source © Rogistok | Megapixl.com
How Is the Crypto Space Addressing This?
While Bitcoin mining has been happening for over a decade, its harmful environmental impact only became known to the masses this year.
In April, Entrepreneur, Elon Musk, announced on Twitter that his electric car company, Tesla, would no longer be accepting Bitcoin as payment for their vehicles. Musk sited Bitcoin’s harmful impact on the environment as the reason for this decision.
In the months following Musk’s announcement, the Chinese government announced a crackdown on activities relating to digital currencies, including Bitcoin mining.
This was significant given, at the time, it was reported that 65% of the world’s Bitcoin miners were located in China.
Proof Of Stake
An alternative mining solution to the energy consuming proof-of-work consensus is proof-of-stake (PoS).
PoS doesn’t require powerful machines to solve difficult mathematical problems, like PoW. Rather, in order to mine coins using the PoS consensus, miners must simply own – or rather have a “stake” in the cryptocurrency.
On the back of heavy criticism experienced by Bitcoin’s PoW consensus, PoW models became all the rage amongst investors as currencies like Cardano capitalised by touting themselves as a more environmentally safe alternative.
The second largest cryptocurrency, Ethereum, is currently in the middle of a much anticipated upgrade, where it hopes to change its mining consensus from PoW to PoS.
This upgrade would be a huge win for the environment given Ethereum’s growing popularity this year.
Ethereum’s market cap is now US$413.15 billion to Bitcoin’s US$1.06 trillion, which is a significantly smaller gap compared with the beginning of the year. If Ethereum can manage to convert its mining to a PoS method, this would go a long way towards reducing energy consumption.
While Ethereum’s planned upgrade spells good news for the environment, there remains a US$1.06 trillion issue. Bitcoin.
While Bitcoin remains the largest cryptocurrency, its mining will have a negative environmental impact. Furthermore, unlike Ethereum, Bitcoin’s blockchain design means it can’t upgrade, which means that it will always have to be mined using a PoW consensus.
The good news, however, is there are much more environmentally friendly alternatives. It’s just a question whether the market will consider the environment when choosing the best crypto.