Everyone in this current day and age must have heard about cryptocurrencies, or at least Bitcoin. A usual conversation regarding cryptocurrencies tends to deviate towards profit margins or loss percentages, and trends the market follows. However, a crucial consequence of this commodity that the masses tend to neglect, is the devastating impact it has on the environment.
First off, one question comes to mind. Why should a currency that one can’t even physically touch cause any form of environmental damage? And even if it does, how? The answer lies in the computational power and energy required in cryptocurrency mining.
For example, let us consider Bitcoin. The way more Bitcoin comes into existence is by “mining” it. This process of mining is essentially done by solving an extremely sophisticated mathematical problem, which in turn requires immense computational power. When the coin was made, there was already a cap set to the total number of Bitcoin that can be mined, and miners would receive some Bitcoin in return for mining it. This enormous computational power and energy that is required, must be generated by power plants, which is what causes most of the environmental damage, especially in the present scenario as there are fewer units available to mine; and hence, more computational power is required to mint new ones.
Along with the process of mining, the transactions themselves consume a lot of energy. The point to note is that though energy can be clean, most often, it isn’t and many countries burn fossil fuels to generate it. Now, as the availability of these coins decreases, the race to mine them increases. And as such, miners look to build large mining rigs and networks to assemble as much computational power as possible. This not only directly impacts the environment with the power plants burning fossil fuels and leaving a large carbon footprint, but it also draws a large amount of water to cool these power plants. As a result, the temperature of the water has risen when it is dumped back into the water body, which in turn, endangers marine and aquatic life. To put into perspective the gravity of the problem at hand, the transaction involved with Bitcoin itself consumed more power than certain countries.
However, does this mean the world should decide to completely boycott the concept of cryptocurrencies to save the environment? This type of notion isn’t necessarily the best way to move forward. Rather than looking at scenarios on either extreme — of either overusing or boycotting a certain commodity, the correct way to progress seems to be a sustainable utilization of the said commodity. Adhering to similar principles, councils and accords such as Bitcoin Mining Council [1] and the Crypto Climate Accord [2] have begun devising plans and roadmaps to ensure that crypto mining and transactions become more energy efficient. One of the key goals set is to ensure that all blockchains would fully run on renewable energy by 2025.
After this consequence crosses one’s mind, a common question posed would be regarding how to solve this issue and what could be done to prevent further damage. The potential ways that are being discussed right now revolve primarily around two aspects. One is to quicken the shift across the globe from conventional methods of energy generation such as burning fossil fuels, to a more sustainable and clean energy generation. The other would be to try to shift from the existing Proof of Work or PoW system and to a new Proof of Stake or PoS system.
What exactly is this Proof of Stake (PoS) system? The Proof of Stake system is essentially a method of validating cryptocurrency transactions and minting new coins that poses as an alternative to cryptocurrency mining. It does not use extensive computing power and energy in the process of minting new coins. Under this system, the authority to validate transactions and operate the crypto network is granted based on the amount of cryptocurrency that an individual has “staked,” or agreed to not trade or sell. This system counters the existing Proof of Work (PoW) model where an individual is required to “solve” a complex equation in order to obtain some amount of cryptocurrency.
Along with these different systems, there are potentially new systems that can be experimented with to reduce this environmental impact. Some of these are Proof of History [3], Proof of Elapsed Time [4], and Proof of Capacity [5]. It is important to note that none of these methods rely on extensive computing and energy usage; thus, giving them a promising potential with certain clear advantages over the Proof of Work system in terms of the impact caused on the environment.
While these aforementioned methods are solutions, or potential solutions, to reducing the negative impact cryptocurrency has on the environment, only time will tell us just how effective they are.
Article by: Nischal Kashyap
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