What is Green Cryptocurrency & is it Actually Eco-Friendly?
- By Localcoin
- December 30, 2021
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As cryptocurrency grows, so too do the number of questions concerning its energy use. Bitcoin’s energy consumption in particular has become a highly discussed topic as of late. Because it is the world’s largest crypto coin by market cap, Bitcoin is also the biggest energy consumer compared to other commonly used coins. And while Bitcoin’s energy demands are undeniable, it’s important for those interested in crypto to have more context surrounding the issues at hand, including:
- Bitcoin’s energy consumption and the reasons behind it
- The efforts Bitcoin miners are making to find solutions to growing energy concerns
- More energy-friendly alternatives used by other coins to make green cryptocurrency possible
Let’s dig into these topics to help you better understand the energy usage behind crypto transactions and the work being done to make green cryptocurrency a viable option in an energy-conscious world.
Browse This Content:
- Why Does Bitcoin Use So Much Energy?
- The Answer: Crypto Mining and the Proof of Work System
- How Bitcoin Miners Are Trying to Find Energy Solutions & Change the Narrative
- Miners Are Hoping to Change the Narrative
- What is “Green Cryptocurrency” and is it Possible?
- Final Thoughts on Green Cryptocurrency
Why Does Bitcoin Use So Much Energy?
The conversation around cryptocurrency and its energy consumption has entered the mainstream. It’s gotten to the point where even highly influential crypto enthusiasts are sharing their concerns around how much energy Bitcoin consumes. If you’re new to crypto and still grappling with how it works, it’s important to understand the reason behind Bitcoin’s energy consumption. The answer has to do with the current way in which Bitcoins are minted and how Bitcoin transactions are verified.
The Answer: Crypto Mining and the Proof-of-Work System
In order to operate as a decentralized currency, Bitcoin and many other cryptocurrencies use peer-to-peer technology called blockchain. In summary:
- Blockchains are used as public, digital ledgers that record coin transactions.
- Blockchains are powered by “nodes”, or individual computers owned by members of the network.
- These computers collectively oversee the network and safeguard the security of its transactions.
- This method allows Bitcoin to operate at a peer-to-peer level without intermediaries including banks and governments.
A key step in keeping the currency decentralized is Bitcoin mining. The process of mining is a necessary part of verifying transactions on the blockchain and minting new coins into circulation. The formal name of this system or protocol is known as Proof-of-work (PoW).
Why Does Proof-of-Work Lead to High Energy Consumption?
Proof-of-work — the original mining system used by Bitcoin and many others — rewards miners who have the most computational power at their disposal. More specifically, miners compete to verify transactions and add them to the blockchain — a process involves solving very complex mathematical problems as quickly as possible. Those with the most computational power succeed, receiving newly minted coins as a reward. As Bitcoin halves over time, miners will require even more energy and new, upgraded hardware to mint the same amount of coin rewards. This can be attributed to the following cycle:
- As new miners join the network, the coin’s “hash rate” increases. The hash rate describes the amount of computing power being used by the network.
- When the hash rate increases, so too does the mining difficulty. Bitcoin was designed this way to control the rate at which new coins are minted and entered into circulation.
- The price of Bitcoin, and the rewards for mining it, often increase with the hash rate. With an increase, the possibility of earning more rewards encourages even more miners to join the network.
- When mining difficulty increases, miners need to use more computing power and upgrade their hardware — generating more e-waste. Some of this hardware, including the leading equipment on the market, generates excess heat and requires its own cooling equipment. This further adds to the amount of energy needed to mine Bitcoin.
How Much Energy Does Bitcoin Use?
Crypto miners aren’t just enthusiasts with small mining rigs at home anymore. Crypto mining has now emerged as its own industry, with digital mining companies (some that are even publicly traded) and giant data centers around the globe.
- The annual carbon footprint of Bitcoin mining alone is estimated to be higher than the annual consumption of many small countries from Finland to Chile.
- It is estimated that one Bitcoin transaction is equivalent to several hundred of thousands of VISA transactions.
- In November 2021, Swedish financial and environmental regulators called for a ban on Bitcoin mining in Europe in order to hit goals set in the Paris climate agreement.
How Bitcoin Miners Are Trying to Find Solutions & Change the Narrative
Bitcoin miners are well aware of the energy concerns surrounding Bitcoin and are looking to find solutions. Energy consumption is a primary area of interest for the Bitcoin Mining Council — an open forum of miners committed to transparency, best practices and upholding the network’s core values. Their proposed response? Committing to transparency and to using more renewable energy sources.
According to a report by Cambridge University, it is estimated that more than 75% of all crypto miners today are using renewable energy sources as part of their energy mix. What’s more, efforts are underway to not only use this energy to mine Bitcoin, but to harvest it for other purposes as well — such as to provide heat for housing in various communities.
Some Bitcoin miners also use carbon credits to offset the impact of their fossil-fuel burning operations. These are then used to fund green initiatives elsewhere. It’s also important to note that Bitcoin’s energy consumption is not equivalent to its carbon emissions. This is because Bitcoin miners operate all over the world using various types of energy sources. And because miners are not obligated to disclose their energy mix, it’s difficult to estimate the true carbon footprint associated with mining Bitcoin and other cryptocurrencies. It should also be noted that Bitcoin’s energy use makes up less than half of the energy used by traditional banking systems.
Still, these realities don’t take away from the fact that there is still work to do to make Bitcoin and other cryptocurrencies more sustainable. As a viable alternative to the world of centralized currencies, the crypto community has a chance to come up with bold solutions that will lead to a future defined by more responsible energy use.
What is “Green Cryptocurrency” and is it Possible?
Green cryptocurrency is still a work in progress, partly due to the uncertainty surrounding the actual carbon footprint of mining. That said, there are already highly popular cryptocurrency platforms that are using a viable alternative to the proof-of-work system called proof-of-stake (PoS). This new approach to verifying transactions and incentivizing the minting of new coins could potentially address some of the energy usage issues inherent in the proof-of-work system.
The PoS protocol is proving to be a more eco-friendly method of rewarding users for verifying transactions and supporting the network. Notably, the Ethereum network is moving to a proof-of-stake protocol, alongside other coins.
The process of “staking” involves pledging a portion of your own crypto assets to a coin’s network and locking them up for a period of time, all for the chance to be rewarded with newly minted coins. This method does not incentivize computational power in the same way that proof-of-work does. Instead, the more crypto holdings you have locked up, the better chance you have of being selected to verify transactions and earn rewards.
Final Thoughts on Green Cryptocurrency
The sustainability of Bitcoin and other crypto coins is a very important issue for the crypto community and one that will continue to spark debates, discussions and systematic change over the coming years. While there may not be a clear-cut answer on green cryptocurrency just yet, it’s important for crypto enthusiasts and beginners to stay informed about developments with their coin(s) of choice. With the right knowledge, you can make more informed decisions surrounding your crypto strategy and choose the coins that are right for you.
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