When it came to cryptocurrencies, it seemed like nothing would stop Bitcoin’s rise to the top. At one point in April this year, the price of a single Bitcoin was USD $64804. But then came the fall, driven by two big news items.
The first and most significant one was when Elon Musk flagged off the use of fossil fuels to drive Bitcoins and cited its enormous energy consumption as a reason to stop taking payments in cryptocurrency for Tesla as was being discussed. China, too, cracked down on over half the country’s Bitcoin mining operations, with energy use being cited as one of the reasons behind the crackdown.
Bitcoin and Energy Consumption –Â
To understand both of these decisions, it is important to know how Bitcoins work and how they use energy. According to the Cambridge Center for Alternative Finance (CCAF), Bitcoin currently consumes around 110 Terawatt Hours per year — that’s 0.55% of the global electricity production, and roughly equivalent to the annual energy draw of small countries like Malaysia or Sweden.
This certainly sounds like a lot of energy. But why does Bitcoin need so much energy? Well, Bitcoin laid out the idea for Proof of Work, in which separate parties take on the task of verifying the records and transactions stored in a blockchain. These separate parties need to use specially constructed computers and have access to a lot of energy to participate in the blockchain verification process.
Since Bitcoin is decentralized, meaning no central authority has rights over it, computers from all over the world work towards the verification process that rewards miners with Bitcoin for their effort.
Why Green Cryptocurrency Matters –Â
With more cryptocurrencies joining Bitcoin and the general uptake towards crypto since the pandemic, the energy usage involved in generating them has been on a tremendous upswing. It seems counterproductive to use fossil fuel emitting energy sources such as coal to power what many believe is soon-to-be the digital currency of the future.
Not just that, Bitcoin mining also significantly impairs nations’ commitment to adhering to the Paris Climate Treaty norms. Looking at all of these, the case for a greener alternative to Bitcoin mining is the need of the hour.
Indeed, the institutionalisation of Bitcoin will happen sooner rather than later with corporates like Paypal and Mastercard and countries such as El Salvador looking to utilize cryptocurrencies for transaction and turn it into legal tender in the near future. Even Musk has promised to look into accepting Bitcoins once again even as earnings report released this week show that the company holds $1.3 billion worth of Bitcoin.
New Initiatives –Â
To help institutions and companies adopt Bitcoin, it is imperative that the cryptocurrency adopts green practices as far as possible to win over climate sceptics and environment warriors.
Keeping that in mind, initiatives have started springing up across the globe to reduce the carbon footprint generated by cryptocurrencies. El Salvador, which plans to introduce Bitcoin as legal tender from September, is planning to generate electricity by using geothermal energy from volcanoes to mine cryptocurrency.
Blockchain applications are also moving towards Proof-of-Stake protocols, instead of the traditional Proof-of-Work ones that require users to solve problem. Proof-of-Stake doesn’t require solving complex mathematical puzzles that consume a lot of energy, and it only requires you to prove you have some money in the bank.
Ethereum, the second-most popular cryptocurrency, is currently midway through a complicated transition from proof of work to proof of stake. To be sure, there are already cryptocurrencies like Avalanche, Cardano, and Harmony that use Proof of Stake over Proof of Work but they’re relatively smaller, and their impact on the overall crypto-world is still small compared to biggies like Bitcoin and Ethereum.
Sharding is another way green technology is moving into cryptocurrencies. Sharding, used by blockchain platform Ziliqa, involves dividing blockchain workloads for separate sets of nodes, or shards, to handle. Since each node only has to process what is assigned to its shard, less energy is used overall.
Ethereum’s transition to the Proof of Stake framework with all its underlying changes and countries like El Salvador using green energy alternatives means that Bitcoins and cryptocurrencies are fundamentally poised to alter from the way they currently function. This will also begin a new phase that is much more aligned with environment and carbon neutral goals.
Conclusion –Â
While transitioning to green energy isn’t an overnight process, the initiative and willingness shown by the cryptocurrency world augurs well for itself and the planet in the months going forward. Skeptics and environment lovers who have stayed away from investing in cryptocurrencies because of its high energy usage can finally breathe easy knowing that meaningful and permanent green solutions are here to stay.
Ref: Paris Climate Treaty norms – https://cryptoclimate.org/accord/
This is a partnered post.Â
