Is the use of blockchain-based Cryptocurrency a way towards Sustainability?
Sustainability is increasingly becoming a central criterion for the future of the blockchain industry.
Achieving a cryptographic mechanism that is not only effective but also efficient is essential to further expand the use of blockchain-based cryptocurrencies.
Cryptocurrency mining is a process that usually involves high energy consumption, due to the complex levels of computation required.
In order to minimize the carbon footprint associated with the first digital currencies, alternative models with a low environmental impact have been developed: the so-called green cryptocurrencies.
To analyze the energy efficiency of a particular cryptocurrency, it is necessary to inspect its process of creating and maintaining blocks of information.
How the users of that currency have agreed to record and validate the information contained in each block of the distributed database.
Almost all of the most popular cryptocurrencies — such as Bitcoin, the original cryptocurrency created in 2009 — are produced through mining.
This is precisely the process that the new green cryptocurrencies want to rethink in order to reduce their disproportionate energy consumption.
An inefficient energy expenditure, with its associated greenhouse gas emissions, opposed to the founding purpose of digital currencies to create a more accessible, fair, and sustainable system than traditional government-controlled currencies.
A green cryptocurrency must maintain the integrity of the blockchain while being energy efficient and minimizing the carbon footprint.
The control of each cryptocurrency or digital currency works through a decentralized database, usually, a blockchain, which serves as a kind of public financial ledger.
The information in this database is not stored on a single computer, but on multiple terminals connected to each other via the internet — so-called nodes — that distribute the updated information in real time.
The transactions included in each block are controlled by high-powered computers and a complex validation protocol referred to as data mining.
This validation process is based on consensus: because everyone in the network has access to the same information, everyone believes it to be true.
A system that makes it possible for data to be recorded in unique blocks of information and interlinked, making it easy to retrieve and verify at any time.
Data mining encompasses a set of techniques aimed at extracting actionable and implicit knowledge from databases. The basis for mining cryptocurrencies lies in artificial Intelligence and statistical analysis.
The Bitcoin business alone is estimated to have an annual electricity consumption of more than 198 terawatt-hours (TWh), comparable to that of countries such as Thailand. An electro-intensive use that translates into almost 95 million tonnes of CO2 per year.
Comparable to the emissions of nations such as Nigeria, according to Digiconomist’s Bitcoin Energy Consumption Index.
These rising figures are confirmed by other studies such as that of the Judge Business School at Cambridge University.
And they were the focus of media attention by Tesla CEO Elon Musk, who announced in May 2021 that his electric car company will no longer accept bitcoin as payment.
Why does Bitcoin have such a high energy consumption?
The main cause is an inefficient mining system or consensus mechanism, known as Proof-of-Work (PoW). To verify transactions within its decentralized structure, Bitcoin requires computers dedicated to mining cryptocurrencies to solve increasingly complex mathematical problems.
Many miners compete simultaneously to see who can certify a transaction first and, as a reward, get paid in the form of bitcoins.
Transition to renewable energies
It is an obvious first response to correct the carbon emissions figures generated in the cryptocurrency industry. In 2021, less than 40% of the bitcoins verified by Proof of Work were mined with renewable energy sources.
This is why numerous start-ups have emerged with different proposals to address this gap.
Introducing carbon credits
The application of state carbon credits for cryptocurrency mining companies could lead to them buying carbon credits from other companies. Helping to offset the number of emissions created globally, or switching to greener energy in order to sell their own credits.
Cryptocurrency- 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.
Five of the most popular green cryptocurrencies are gaining popularity:
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.