Due to the energy-intensive method used to manufacture coins, cryptocurrency mining has major environmental consequences, just like the mining sector. The cryptocurrency industry, though, might begin to alter how it does business, unlike the mining sector.
Here’s all you need to know about why cryptocurrency mining is unsustainable and what fresh developments may change that.
What effects does cryptocurrency have on the environment?
We must first comprehend how new coins in a cryptocurrency are created in order to comprehend the environmental effects of cryptocurrencies. Due to the lack of centralized control over cryptocurrencies, the blockchain depends on users to verify transactions and add new blocks of data. These blockchains must be very difficult to verify and expensive to do so in order to guard against malicious actors trying to manipulate this additional information. So, the majority of cryptocurrencies adopted proof of work.
Users can validate cryptocurrency transactions using the proof of work consensus technique by resolving a challenging mathematical puzzle. The transaction is validated by the first user who completes the puzzle, and they are given a set amount of cryptocurrency in return. The cycle then restarts. It is the consensus process that is most commonly utilized.
When someone “mines” cryptocurrency, what they’re really doing is running applications on their computer to try and solve the puzzle. The more processing power your computer has, the more likely it is that you will be granted permission to update the blockchain and receive incentives. To outperform their rivals, miners are therefore motivated to invest more power in their mining operations.
To further maximize processing resources towards solving these proof-of-work problems, incredibly powerful computers called application-specific integrated circuit (ASIC) miners were developed. ASIC miners are built specifically for mining a specific cryptocurrency algorithm. ASIC miners can be used to mine any cryptocurrency, but because Bitcoin mining is so competitive right now, they are currently a must.
The University of Cambridge estimates that the yearly energy output of Bitcoin alone is 132.48 terawatt-hours (TWh), easily above Norway’s projected 2020 annual energy consumption of 123 TWh. Depending on the method used to produce the energy, different amounts of carbon dioxide will be released throughout this use. However, in 2020, the US produced.85 pounds of carbon dioxide per kWh, accounting for 35.4% of Bitcoin mining activity since 2021, when China prohibited the practice. Due to US Bitcoin mining alone causes the production of around 40 billion pounds of carbon dioxide.
Additionally, the amount of Bitcoin distributed for resolving the problem and updating the blockchain is halved about every four years. The award was reduced by half last, from 12.5 to 6.25 coins, in 2020. The amount of carbon dioxide produced to produce one coin doubles overnight after each halving.
Are all cryptocurrencies harmful to the environment?
The primary way of validation, providing evidence of one’s work, will probably continue to be effective for the foreseeable future. However, not all cryptocurrencies are created through proof of work, and as a result, they don’t need as much processing power or energy as cryptocurrencies that are created using proof of work.
Blockchains still require validation, however, new validation techniques have arisen that offer equivalent degrees of security using alternative verification techniques.
Blockchains still require validation, however, new validation techniques have arisen that offer equivalent degrees of security using alternative verification techniques.
Proof of Stake
In this validation mechanism, miners use their existing cryptocurrencies to get mining privileges corresponding to the amount of coins they already possess. They conceal their funds in order to establish a validator node that can confirm a transaction. A random validator node is selected by the blockchain whenever a block of new data needs to be approved. The block can be added to the blockchain after being verified by the validator. Some of the money they wager is lost if they attempt to add a block of false information.
Despite the fact that this system doesn’t have the energy consumption problems that afflict proof of work, it has been criticized for structural injustices because those who have the most coins receive the highest returns. The cost of purchasing the computer power required to mine through proof of work should also be considered. The largest among the more than 200 coins that use proof of stake is Solana, which has a market cap of $28.39 billion.
Proof of Burn
Proof of burn is a combination of proof of stake and proof of work. Under proof-of-burn techniques, validators burn a certain amount of cryptocurrency, which permanently removes those coins from circulation. By doing this, validators purchase a virtual mining gear that mines at a rate inversely proportionate to the number of coins burned. You may then mine cryptocurrencies without having to use a lot of electricity as a result.
Proof of burn is a combination of proof of stake and proof of work. Under proof-of-burn techniques, validators burn a certain amount of cryptocurrency, which permanently removes those coins from circulation.
This technique, which was very recently developed, was made in order to precisely solve the environmental issues raised by proof-of-work mining. Because of this, it hasn’t really taken off. The only cryptocurrency that makes advantage of this method so far is Slimcoin.
Proof of Capacity
Proof of capacity employs available storage space on a mining device’s hard drive for validation as opposed to computing power or stake. The proof of capacity mining algorithm stores potential solutions utilizing any free space on a mining device; hence, the more storage capacity you have, the more solutions you may store, increasing the likelihood that you have the right algorithmic solution. This mechanism is used by a few coins, including Burst, Chia, and Storj.
Proof of Elapsed Time
Proof of elapsed time is another consensus technique, however, it is generally employed in permissioned blockchains, as opposed to public blockchains. This is fairly random because it chooses participants in a lottery-style process to update the blockchain.
Future of cryptocurrency and the environment
The growth of proof of work mining is unabated, despite improvements in alternate methods of producing cryptocurrency. The predicted monthly consumption of Bitcoin in January 2020 was 6.07 TWh, and it increased to 8.92 TWh in January 2021. Utilization stood at 10.95 TWh as of January 2022.
The challenge with proof of work mining is figuring out a sustainable way to provide the electricity required for the computing power that these miners need. Thus, mining operations must be relocated from the US to nations with a greater variety of green energy sources.
The challenge with proof of work mining is figuring out a sustainable way to provide the electricity required for the computing power that these miners need. Thus, mining operations must be relocated from the US to nations with a greater variety of green energy sources.
Out of concern about the environment, some segments of the cryptocurrency industry are abandoning proof of work. The second-most actively traded cryptocurrency, Ethereum, is working to switch from proof of work to proof of stake.
Initiatives to reduce carbon emissions on a personal level have also been made. 250 individuals and businesses have signed the Crypto Climate Accords. These signatories pledge to reach net-zero carbon emissions by 2030 and, ultimately, to decarbonize the whole cryptocurrency sector by 2040.
Inadequate regulation of digital currency enterprises and a failure to take into account the environmental effects of this technology might have negative effects on the environment as well as deter future digital currencies from taking steps to cut their energy use and carbon emissions. The environmental impact of digital currencies should not be disregarded as their use becomes more widespread.
