What’s Behind the Green Cryptocurrency Boom?
Ever since they rose to prominence, cryptocurrencies have been praised for the multitude of advantages they provide. As digital or virtual currencies that use digital ledger technology to facilitate transactions via a distributed network, cryptos represent a great alternative to traditional financial systems, addressing many of their shortcomings. They ensure fast and easy transactions, they […] The post What’s Behind the Green Cryptocurrency Boom? appeared first on Disrupt.
Ever since they rose to prominence, cryptocurrencies have been praised for the multitude of advantages they provide. As digital or virtual currencies that use digital ledger technology to facilitate transactions via a distributed network, cryptos represent a great alternative to traditional financial systems, addressing many of their shortcomings. They ensure fast and easy transactions, they offer enhanced security and privacy, being backed by cryptographic methods, they’re not governed by a central authority which ensures greater transactional freedom, and they create a more inclusive financial system.
However, there are two sides to every coin, and crypto coins make no exception. For all the benefits they bring to the table, there are also certain drawbacks to be aware of in relation to digital currencies. Most people are fully aware of the volatility that characterizes the crypto environment but it seems that the biggest concern at the moment has to do with a completely different aspect – the negative impact that some cryptocurrencies have on the environment.
Environmental activists sounded an alarm bell regarding the risks associated with crypto mining, bringing attention to a set of issues that were ignored in the hype and haze surrounding cryptocurrencies. And let’s not forget Elon Musk’s stance on the matter, when he decided to suspend Tesla purchases using bitcoin due to climate change concerns, starting new discussions on the environmental implications of digital currencies.
The need for more sustainable and eco-friendly cryptocurrencies
So, it appears that cryptos and the environment are not exactly what one would call a match made in heaven, but where does the problem lie and how do digital currencies play into the climate change issue?
The problem stems from the mining process which uses massive amounts of energy. It’s no news that crypto mining requires sophisticated hardware and a complex computing process in order to validate transactions, and that translates into a very resource-intensive activity to keep the crypto wheel spinning. And the problem doesn’t stop here. It’s not just the amount of energy used, but also its nature. Most of the electricity that powers crypto mining and transactions comes from non-renewable sources, such as coal, which obviously takes a large toll on the planet’s health.
It is estimated that a single Bitcoin transaction requires approximately 1997.16 kWh. To put things into perspective, that’s almost the same amount of electricity that an average family would use over the course of one month. What’s more, the annual energy consumption of the entire bitcoin ecosystem amounts to nearly 198 terawatt-hours (TWh), leading to almost 95 million tons of CO2 per year.
Unfortunately, this problem is not specific to bitcoin. Other digital currencies that rely on the same proof of work (PoW) mechanism pose similar concerns. This casts a shadow on all the benefits that digital currencies provide and stresses the need to come up with more sustainable solutions that could make cryptocurrencies lean more on the eco-friendly side.
Cryptos that are paving the path towards a greener tomorrow
Fortunately, the pressure and requirements from both environmentalists and influential public figures have not fallen on deaf ears. The wheels have started to turn in the right direction giving way to a wave of green initiatives in the crypto environment that will hopefully pave the way to a more sustainable future. So, let’s take a look at some of the most important drivers of change in the crypto market.
Ethereum is one of the most popular and successful digital currencies to date and can be found on all major trading platforms such as Binance. However, it did not escape the scrutiny of environmental activists who criticized the technology for the large amounts of energy used in the mining process.
So, Ethereum’s founders decided to take action and address the issue by developing a brand-new system that replaces the proof-of-work model with one based on proof-of-stake. This new version of Ethereum will be called Ethereum 2.0 and aims to cut energy demands drastically, by up to 99.95% after the switch is made. The merge from proof-of-work to proof-of-stake will not be smooth and it may take a while for Ethereum to reach its sustainability goals, but they’ve already made the first steps in this direction which goes to show they’re truly committed to being a part of the solution.
Cardano is a digital currency developed by Charles Hoskinson, one of Ethereum’s co-founders, similar to what Ethereum plans to do, it’s based on a proof-of-stake mechanism called Ouroboros to validate and record transactions instead of a proof-of-work system.
Cardano uses a peer-reviewed blockchain where users have to purchase Cardano units to become members of the network, which significantly reduces energy usage. One of the greatest advantages that Cardano has over other cryptocurrencies, apart from energy savings, is the transaction capability. While bitcoin can only process seven transactions per second, Cardano has upped the game to 1,000 transactions per second.
Nano is a cryptocurrency that emerged in 2015 and can be deemed as low-energy even if it utilizes a proof-of-work mechanism. What makes Nano different from other digital currencies that are based on proof-of-work is that it doesn’t rely on mining. Instead, it employs an innovative new technology called “blockchain lattice” where users maintain account-based blockchains on the Nano network. It has an Open Representative Voting protocol to confirm transactions and cut down on energy consumption.
Chia is another great contender on the sustainable crypto list. Chia is quite unique in the crypto landscape in the sense that it’s based on a proof-of-space method that allows it to skip the energy-intensive mining process. This means Chia puts users’ hard drives to good use, as they become the spaces where chia coins can be farmed. When the software download is completed, the computer starts doing the hard work of growing chia. This may not be the most energy-efficient method, but it does employ less energy than other cryptos based on PoW.
If there’s one thing that we can take away from looking at all these crypto projects that have emerged recently is that the future of cryptocurrency is definitely green, so we’re surely going to see more similar initiatives in the years to come.