In the past decade, cryptocurrencies have grown from fringe currencies to major digital assets that can shake up the financial sector. These currencies have recently become one of the most valuable assets on the planet, and experts predict that coming years could continue to see their usage surge. This is good news for investors, but it doesn’t come without its drawbacks.
The environmental impact of digital transactions is one of the main problems with cryptocurrencies due to the intricate mathematical calculations required to create every bitcoin. Consider this on a global scale, and you might be surprised to hear that the amount of power needed to deal in cryptocurrencies is similar to that of a small country.
Investors are increasingly concerned about the impact of cryptocurrency on the environment. This is why more people are seeking eco-friendly options to get the full benefits of digital currency. There are no two cryptocurrencies exactly alike. This includes the environmental impact.
Here we have looked at the most environmentally-friendly cryptocurrencies available today, focusing on what experts are doing to limit the ecological damage that they might cause.
What is a cryptocurrency?
Despite being relatively new ten years ago, cryptocurrency has become a well-known term. It is a term that refers to digital currencies or virtual currencies that are based on cryptography and use complex encryption algorithms. These digital assets are extremely secure and virtually impossible to counterfeit. They can also be easily transferred and are resistant to inflation.
Bitcoin is the most well-known cryptocurrency. Bitcoin, the first decentralized cryptocurrency, was launched in 2009. Satoshi Nakamoto is the name of the developer, although this pseudonym is used. The real identity of its creator remains somewhat of a mystery, with several high profile scientists and engineers claiming that they were behind the world-famous digital currency.
What is the difference between blockchain and cryptocurrency?
Although terms like blockchain and cryptocurrency are often interchangeable, they have very different meanings. Blockchain is the technology on which cryptocurrencies are based. It is the foundation of many of the most well-known digital currencies, including Bitcoin.
Blockchain technology isn’t just used for Bitcoin. Many virtual assets use this digital ledger. Blockchain links many records using cryptography. These records are now called blocks. Because the data within it link each block, any information can’t be changed. This level of security is what has made blockchain-based currencies so popular.
Cryptocurrencies are gaining popularity
The recognition of cryptocurrencies has increased as they become more well-known. This recognition has led to a surge in interest in digital currencies and a rapid increase in their value.
Tesla CEO and Chairman Elon Musk recently announced that the company’s electric cars could be bought using Bitcoin. The company would then hold this Bitcoin rather than be immediately converted into a traditional currency. This announcement sparked a tremendous surge in interest and led to a significant increase in the value of Bitcoin itself.
The interest in cryptocurrency continues to be high. Experts are predicting a steady rise for many of the best-known currencies over the coming months and years. The real question is: Will cryptocurrencies change the financial system? Many believe that cryptocurrencies can do this, as they are positioned to do so.
Why are cryptocurrencies often bad for the environment?
Digital currencies may not seem to be a significant threat to the environment at first glance. The real impact of trading in cryptocurrency is becoming apparent, and it paints an ugly picture.
Due to the energy needed to power their algorithms, digital assets like Bitcoin can have a significant environmental impact. Although this could theoretically be accomplished using renewable energy, it is almost always not. China is a leading player in mining for Bitcoin, and 60% of the energy it uses to do so is powered by coal.
You can see the problem when considering the huge number of cryptocurrencies and the increasing demand for Bitcoin mining. Blockchain-based currencies use as much energy today as small countries. Yet, their popularity is growing. As demand grows, so will the industry’s energy needs.
If bitcoin was a country
Bitcoin is a proof-of-work chain that uses transparent energy because there is only one step between power inputs and bitcoin outputs. The energy used by mining is what completely limits bitcoin’s energy footprint. Bitcoin currently consumes 0.58% global energy, ranking it 29th in energy consumption if it were an actual country.
CoinDesk stresses that bitcoin is not a country. It also states that comparing its power consumption with other countries won’t help much beyond understanding how much it uses. Bitcoin accounts for less than 1.29% of the total power consumption of all countries with mining operations.
Video game consoles account for about 0.25 per cent of U.S. energy consumption. Construction, commercial ventilation, and lighting are between 2% and 3%. CoinDesk explains that such a context is important because energy use for bitcoin mining is spread among multiple countries, which means it’s useless to compare the cryptocurrency’s consumption to other countries.
What type of energy does Bitcoin use?
Bitcoin mining consumes a lot of energy. Now, we need to consider what type of energy it uses. One concern about energy use is that some bitcoin miners in Asia might be using coal-fired electricity. This is known for the pollution of China. CoinDesk says that about a third of the electricity used to mine Bitcoin is renewable.
This publication refers to a 2020 study by the CCAF, which showed that 39% of bitcoin mining energy came from renewable sources in 2019. This is an increase from 28% last year. The study also found that 76% of miners used renewable energy sources as part of their energy mix.
Renewable energy sources and bitcoin problems
CoinDesk reveals that hydroelectricity is the most popular source of renewable energy for bitcoin miners. It is, however, widely considered to be the least desirable because of potential methane emissions and the damage it causes by poor management.
CoinDesk says that bitcoin miners should not be dependent on one source of renewable power because there are many.Wind energy, for example, is not only cost-effective but also intermittent and can cause damage to wildlife. Photovoltaic cells convert sunlight into energy. They can also pollute the solar energy system.
Geometry is an important part of the discussion about bitcoin mining and energy consumption. The CCAF estimates that about 65% of bitcoin mining takes place in China. China’s energy production has been heavily influenced by coal. 15% of the mining takes place in areas where the energy mix tends to be renewable.
The rest of the mining was in Xinjiang and Inner Mongolia, where coal is prevalent. However, Inner Mongolia operations have been closed, and Xinjiang is moving towards renewable energy.
Bitcoin as a battery
CoinDesk made an interesting point. Because bitcoin is used as a store of value, it can be considered a battery. Although bitcoin mining can be done from anywhere, energy production cannot always be done mobile, particularly in renewable energy.
Bitcoin miners could open a shop in an area that has abundant renewable energy. This would be a boon for the community. Although the concept of bitcoin being a battery is misleading, it serves as a storage area, but it is also storing value, not power. The miners take the energy that would otherwise go to waste and convert it into bitcoin.
Bitcoin mining and energy consumption
According to the news outlet, mining cryptocurrency requires a lot of energy. Individuals, businesses, and groups called miners all use specialized hardware. They process large volumes of transactions by grouping them in blocks and racing against one another to find a random variable that meets the protocol requirement.
Uncovering that variable enables the block to be added to the blockchain, but it also consumers quite a bit of energy in the process. With the issue of bitcoins, miners get rewarded for the work they do on their machines. Mining becomes profitable when the value of the new bitcoins is more than the cost of the power used to mine them.
CoinDesk asks whether bitcoin mining requires as much energy as it does. The publication notes that bitcoin was designed to facilitate transactions between two parties without a go-between. This decentralizes the payment system. To trust one another, both parties must agree on who owns what.
CoinDesk says that Bitcoin’s energy-intensive consensus protocol ensures the network maintains integrity and consensus. The network could easily be attacked if consensus was easy to attain. It is expensive to attack Bitcoin networks because mining is so energy-intensive.
New eco-friendly cryptocurrencies on the horizon
While new cryptocurrencies are constantly emerging, one trend is starting to shift the way digital assets are created: sustainability.
The popularity of eco-friendly cryptocurrency is growing. They are those that limit the impact of transactions. This is evident in Chia and IOTA, which are both mentioned in the table. Chia’s farming process doesn’t depend on heavy mining power and consumes less energy (0.023 KWh per transaction).
IOTA also uses a blockchain alternative called the “Tangle”, which eliminates the need to have miners. Instead, the network is maintained by smaller devices, which use calculations that consume less power and require less energy per transaction (0.00011 KWH).
Another example is Nano, a digital currency network that shuns traditional mining practices favouring a more eco-friendly solution. Nano uses a lighter consensus protocol to reduce the waste associated with cryptocurrency transactions. Open Representative Voting (ORV) is the protocol. It promises maximum energy efficiency and minimal energy consumption.
The next step in cryptocurrency development
Developers are turning more attention to digital currencies as they become concerned about the environmental impact of blockchain-based currency.
As the power-hungry nature of many of the most well-known cryptocurrencies continues growing, we can expect big changes in the practices of currency providers and the creation and development of new blockchain-based currencies. It would be best if you kept an eye out for eco-friendly digital currencies that are created with sustainability in the future.