According to recent estimates from the University of Cambridge, the cryptocurrency bitcoin currently consumes more electricity annually than the entire country of Argentina. This is due to the fact that creating a bitcoin involves sophisticated computers working round-the-clock to decode and solve challenging mathematical puzzles. This process is known as mining.
These computers need an abnormally large amount of energy. Recently, police in the UK seized what they thought was a sizable indoor marijuana cultivation business, only to learn that the high electricity use that had raised their suspicions was really coming from a bitcoin mining setup.
Numerous such systems continue to use more and more energy to mine bitcoins, with about 70% of them currently located in China. Environmental worries have naturally arisen as a result, and Elon Musk tweeted in May 2021 that Tesla will no longer accept bitcoin as payment for its automobiles due to its subpar environmental credentials.
However, there are countless additional cryptocurrencies, commonly known as “altcoins,” which are significantly more environmentally friendly than bitcoin and to which investors are now turning. Many of them are striving to create each coin using less harmful technologies, which might eventually usher in a greener future for cryptocurrencies.
Altcoins
Ether, Solarcoin, Cardano, and Litecoin have all demonstrated significant potential as more environmentally friendly alternatives to bitcoin among the thousands of “altcoins” on the market. Let’s use litecoin as an illustration of how they’re doing it.
Litecoins are quite comparable to bitcoins, with the exception that they purportedly only take one-fourth as long to generate. Litecoins can be mined with regular computer gear, which uses a lot less electricity than the specialized and powerful equipment needed to mine bitcoins.
Other options, like solarcoin, are designed to promote in-person green behavior. Every megawatt hour produced by solar technology is allotted one solarcoin, rewarding individuals who have made investments in green energy.
Additionally, the methods used by various cryptocurrencies to conduct transactions vary. Bitcoin’s “proof-of-work” mechanism, which necessitates a network of miners to compete to solve mathematical puzzles (the “work”), is used to validate transactions. The contender with the most computational power typically emerges as the victor and creates a new bitcoin.
Proof-of-work is praised for being highly secure, making attacks and destabilization expensive and difficult, yet it is incredibly power-hungry. It has eventually come to need more and more electrical power since it puts bitcoin miners in a position of having to fight against a constantly growing armament of high-tech machines.
But this kind of mining has alternatives. Ethereum, the second-largest cryptocurrency in the world after bitcoin, now employs a different system known as “proof-of-stake.” This protocol was created particularly to alleviate environmental issues with the proof-of-work system, and it accomplishes this by removing mining competition. There wouldn’t be a race for computer power among miners absent the competition.
It’s likely that any new alternative coins will adopt ethereum’s approach rather than bitcoin’s given the increased environmental scrutiny that cryptocurrencies are already subjected to. Similarly, while choosing which cryptocurrency to convert their bitcoin into, investors will consider the green credentials of alternative cryptocurrencies.
The future of finance remains
Even while bitcoin has come under fire for stunning energy inefficiency, the conventional financial system is hardly environmentally friendly.
For instance, it has been claimed that 60 of the largest banks in the world have given fossil fuel firms $3.8 trillion (£2.7 trillion) in the five years since the Paris Agreement on climate change, which is not particularly environmentally friendly. According to one study, 49% of financial institutions don’t analyze how their portfolio affects the environment.
The sector’s use of electricity is another factor. While the banking industry is supported by a significant amount of infrastructure that naturally consumes a lot of electricity, cryptocurrencies have the ability to operate without the supervision of powerful financial institutions.
The usage of computers, servers, air-conditioned offices, and fuel-guzzling automobiles by banks themselves is extensive. It’s impossible to determine exactly how much energy is needed to sustain all of this activity, but according to a recent research, bitcoin uses more electricity than the banking system by more than a factor of two.
Therefore, even though bitcoin is rightfully receiving criticism for its ridiculous energy use, all of our financial systems must ultimately be green and sustainable. By reevaluating their holdings and aiming toward net zero carbon emissions, banks may achieve this. However, cryptocurrencies provide an alternative route to greener finance, and the altcoins that focus on their environmental qualities may be able to repair the technology’s image of being energy-guzzling.
