Since the rise of cryptocurrency, many individuals and corporations have welcomed the revolutionary digital asset as a global unifier. However, very few people paid attention to the adverse impact on the environment. Although the traditional financial industry constantly viewed cryptos as tools without good intent for the average user, the industry has made great progress, and that has brought the energy consumption involved into focus. Recently, Elon Musk, the CEO of Tesla, came out to say his company will no longer accept payment in bitcoin. He cited the negative effect of crypto on the environment as the reason for his company’s decision.
The Energy-intensive crypto mining process of Bitcoin
Crypto mining, like Bitcoin, requires a huge amount of energy. The reason is the necessary puzzle that needs to be solved before miners can be rewarded. A study by the Cambridge Center for Alternative Finance revealed that bitcoin consumes 121.05 terawatts of electricity every hour. To put that number into perspective, the country of Argentina consumes only 121 terawatts per hour, and the United Arab Emirates consumes 113.20 terawatts every hour. That is 0.05 terawatts and 7.85 terawatts less than bitcoin every hour respectively.
For miners to mine bitcoin, they need a high amount of energy. That energy needs to be cheap, and to avoid negative publicity it also needs to be clean. Much of the cheap energy available worldwide at the moment depends on coal for the generation of its indigenous power consumption. The implication is that more than 60% of bitcoin miners rely solely on coal to mine cryptos like BTC. There are also reports highlighting that the blockchain protocol of bitcoin generates a high amount of electronic waste.
Digiconomist revealed in its report that the Ethereum blockchain alone consumes the exact amount of power as the entire country of Qatar. This is one of the reason why Ethereum is moving away from a Proof-of-Work based mining process towards a Proof-of-Stake based process. Cryptos using a Proof-of-Work based mining process are grossly inefficient. For example, the mathematical puzzle required to generate new blocks on the bitcoin network becomes more difficult as the price of BTC skyrockets. However, the transaction throughput of bitcoin remains constant. It means that the blockchain protocol of bitcoin will require more energy to execute the same function in the future.
Not all Cryptos require high-energy consumption
Several alternative cryptos have been launched which offer a solution to these environmental issues. One of these is the Avalanche network, created by Ava Labs. It is based on a Proof-of-Stake consensus protocol and hundreds of times faster and more efficient than the consensus protocol used by Bitcoin. As such, it is far more suitable for microfinance ecosystems like Verso while at the same time requiring less energy than Bitcoin mining.
The adverse crypto impact on the environment is largely due to proof-of-work-based crypto protocols. However, not all cryptocurrencies have the same negative environmental impact, in fact, many cryptos don’t use mining at all. Crypto miners must adopt a better and more energy-efficient crypto mining process. Networks like Avalanche are evolving for such purposes.