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It’s difficult to avoid cryptocurrencies these days. From a frequent discussion about bitcoin’s price to businesses like PayPal and MasterCard introducing cryptocurrency-related transactions, it appears as if crypto is everywhere. Regardless, many people are still ignorant about how cryptocurrencies are created in the first place.
In the case of cryptocurrencies such as bitcoin and ether, the process of production is known as mining. This process requires a computer system to solve a highly complicated mathematical problem. In return, the miner gets a block containing a specified quantity of bitcoin. However, this mining technique has been identified as possibly detrimental to the ecosystem in the long term.
The Environmental Cost of Mining
On the surface, mining appears to be a pretty innocuous activity that contributes to the creation of a digital currency. However, it is not that straightforward. Mining bitcoin consumes a significant amount of electricity and computational power, which is why specialist computer systems are built just for mining.
One of the primary concerns is that mining is extremely expensive as a result. In the past, individuals have illegally tapped electricity to avoid mining costs, while mining pools have relocated operations to areas with cheaper electricity in order to sustain mining activities.
While a single crypto miner or even a mining pool might mitigate some of the expenses associated with mining, this does not negate the global power consumption associated with crypto mining. According to some statistics, Bitcoin mining consumes more energy each year than the whole nation of Argentina. Mining accounts for approximately 1% of total world power use when all cryptos are accounted for.
It’s also worth noting that, in terms of public use and adoption, Cryptocurrencies haven’t yet reached their pinnacle. We may anticipate crypto mining to absorb considerably more of the world’s power supply if this happens. While a world with more cryptocurrencies has the potential to be more accessible and inventive, a society with much greater power usage might be environmentally harmful.
In recent years, there has been a notable effort to promote the planet’s sustainability through recycling, renewable energy, and a reduction in our carbon footprint. In the United Kingdom, it was recently declared that gasoline-powered automobiles would be phased out by 2030. If cryptocurrencies that employ the proof-of-work consensus mechanism continue to grow at the rate it has over the past decade, it may prove to be counterproductive.
With cryptocurrencies expected to play a more prominent role in the financial sector, this will certainly be a concern for environmentally aware people. At that time, the issue will be whether the benefits of cryptocurrencies outweigh the costs of adopting a new payment system with such a high carbon footprint.
What are we doing about it?
There are thousands of alternative cryptocurrencies that are considerably more environmentally friendly than Bitcoin and cryptocurrencies operating on the PoW mechanism, and to which investors are increasingly flocking. Many of them are aiming to create coins using less ecologically harmful technologies, which may eventually signal a greener future for cryptocurrencies.
While proof-of-work is lauded for its relative security, making it more difficult and expensive to attack and destabilize, it is incredibly power-hungry. Due to the fact that it compels bitcoin miners to compete against an ever-growing arsenal of high-tech computers, it has unavoidably come to consume an increasing amount of electrical power.
There are a variety of alternatives to this method of mining. Ethereum, the world’s second-largest cryptocurrency after bitcoin, has switched to a new protocol known as “proof-of-stake.” This technique was created primarily to solve environmental issues over the proof-of-work system, which it accomplishes by removing competitiveness amongst miners. Without competition, there would be no computer power arms race in which miners could participate.
Given the increased attention that cryptocurrency is currently getting from environmental groups, it’s probable that any new altcoins would use Ethereum’s model instead of bitcoin’s. Investors will similarly consider an altcoin’s green credentials when selecting which cryptocurrency to exchange their money with.
The traditional Banking system is sailing in the same boat!
Despite accusations leveled at bitcoin for its staggering energy inefficiency, the existing banking system is far from environmentally friendly.
For example, in the five years since the Paris Agreement on climate change was signed, 60 of the world’s largest banks are estimated to have contributed $3.8 trillion (£2.7 trillion) to fossil fuel firms — not very environmentally friendly. According to one research, 49% of financial institutions do not examine their portfolio’s climate effect.
In contrast to cryptocurrencies, the banking industry employs a considerable quantity of infrastructure, which inevitably demands the use of a large amount of power.
Banks employ many computers and servers, thousands of air-conditioned offices, and fuel-guzzling cars themselves. The exact amount of energy that is needed to sustain this activity is impossible to quantify. Still, a recent research revealed that the traditional financial system consumes more than double the power Bitcoin consumes.
Thus while Bitcoin’s abhorrent energy use is justifiably criticized, all our financial systems eventually need to be greener and sustainable. With cryptocurrencies, we have the option of a greener, more environmentally conscious financial route. The altcoins that focus on these principles can help rectify the industry’s reputation for excessive energy use.
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