BlogIs It Possible for Cryptocurrency to Be Eco-Friendly?
Is It Possible for Cryptocurrency to Be Eco-Friendly?
A new wave of eco-friendly cryptocurrency is gaining popularity. But does sustainable crypto actually exist? Here's what you should know.
Cryptocurrency (better known as "crypto") has been a hot topic the past few years. What started as a trend is becoming an increasingly common way to buy and sell things, and a new survey found 1 in 10 people currently invest in it. But when we think about ways to green our finances, we don't necessarily think about cryptocurrency.
In May, Elon Musk stated Tesla would no longer accept Bitcoin as payment due to his concerns over its environmental impact. Instead, he said he would be looking at other options that use less than one percent of Bitcoin's energy use for transactions. But are the eco-friendly cryptocurrency options out there as sustainable as everyone assumes?
What Is Cryptocurrency?
Cryptocurrency is a form of digital currency that can be exchanged for goods and services. Many companies have even jumped on board, creating their own currencies (better known as "tokens"). In order to work, cryptocurrencies run on a blockchain, which is the main cause of environmental concern.
Most of Bitcoin's energy comes from mining. This mining process includes vast amounts of electricity, high-powered computers, and non-renewable energy sources such as coal, which just so happens to be the dirtiest fossil fuel of them all. This burning of fossil fuels leads to more carbon emissions.
"Bitcoin is a proof-of-work blockchain, meaning it uses a proof-of-work (PoW) consensus mechanism to secure the blockchain and verify transactions. PoW means that miners compete against each other to mine a block,” says Susanne Köhler, a sustainable blockchain technology researcher at Aalborg University in Denmark. "In these competitions, specialized computers generate several trillions of guesses per second to try and win. You could call it a brute-force approach. This is what requires a lot of electricity."
As more coins are produced, the calculations done by these computers become more complex. This requires even more powerful computers, which ultimately translates to more energy use. So, how much energy are we talking about?
According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin mining currently consumes more energy each year than Finland. As the value increases, so does the amount of fossil fuel needed for the mining process. This week, the price of Bitcoin hit $50,000—a 3-month high—and it's only on the rise.
To combat the environmental impacts of Bitcoin, other companies are emerging with a more eco-friendly approach.
Are There Eco-Friendly Cryptocurrency Options?
Environmentalists agree that Bitcoin mining is taxing on the environment. As a way to mitigate these claims, eco-friendly alternatives are popping up everywhere with the promise to inflict less damage to the planet.
Some of the ways these alternatives are looking to improve the industry include an increased use of renewable energy, more energy-efficient protocols, and carbon footprint offsetting.
When talking about the most eco-friendly cryptocurrency alternatives in the space, there are a handful of names that come up, including Cardano, Chia, and IOTA.
Cardano, arguably the most popular alternative, has a new blockchain that claims to be more sustainable and scalable than both Bitcoin and Ethereum (the second-largest coin). So far, it seems to be a promising option.
Chia has a "farming" process that requires less energy than mining. It takes place on laptops or desktop computers, utilizing unused disk space to validate financial transactions.
Unfortunately, it may not be as eco as it sounds. Since it's become popular, there's been a shortage of hard drives in some countries. Experts say this could result in "mountains of electronic waste, as hard drives will fail faster and more often."
IOTA uses “Tangle," a technology that doesn't require miners. Instead, participants are involved in the transaction validation process. It's designed to operate on low-tech devices that require minimal energy consumption.
So, Can Cryptocurrency Actually Be Sustainable?
It doesn't seem like cryptocurrency is going anywhere anytime soon. Luckily, not all crypto is created equal.
While options like Bitcoin have a hefty environmental footprint, there are plenty of eco-friendly cryptocurrency options entering the space—like the examples above—that are working on ways to be more sustainable.
With that being said, it's hard to find a perfect eco-friendly cryptocurrency. Even options that are better for the planet than Bitcoin, like Chia, have their downfalls. While it uses less energy and creates fewer carbon emissions, it has been criticized for contributing to the world's e-waste problem.
The good news is cryptocurrency is slowly but surely moving in the right direction. Ethereum, for instance, is moving away from proof-of-work to proof-of-stake, which will make it more sustainable. "However, this is no trivial task and takes time," says Köhler.
There's also the Crypto Climate Accord, a collaborative effort to work with the crypto and blockchain industry to accelerate the development of digital green solutions. The goal is to decarbonize the industry and achieve net-zero emissions from the electricity consumption associated with crypto by 2030. The initiative already has more than 45 companies on board.
With the planet in need of change now more than ever before, hopefully this is just the beginning of a major push to make the industry greener.
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