There have been multiple reports about the negative impact of crypto mining on the environment. According to Digiconomist, a single Bitcoin transaction consumes nearly 2,264 KWh of energy; that’s enough to power an average American household for 75 days. This is amazing given the obstacles related to fossil fuels and climate change that we currently face. Most of this power consumption can be attributed to the notorious proof-of-work (PoW) consensus mechanism.
As all decentralized blockchain currencies operate without intermediaries or central authority, they require network users to come to a mutual agreement (consensus) regarding the authenticity of a transaction. There are different ways (mechanisms) to do this, and Proof of Work (PoW) is one of them. It requires users to devote substantial amounts of computing power (and thus electricity) to verify transactions. Two of the largest blockchains, Bitcoin and Ethereum, use the PoW consensus mechanism.
But now, due to growing concerns, people have started looking for green alternatives. And to the credit of the crypto industry, many sustainable and carbon-neutral cryptocurrencies have appeared in recent years that also serve as viable investment options.
The cry for sustainability
In recent years, various countries have started to realize the environmental impact of crypto mining. China even banned crypto mining in 2021 citing environmental concerns. More recently, New York also passed a law banning Bitcoin mining in the city.
With lawmakers and environmentalists around the world raising questions, the crypto industry was forced to respond quickly and decisively.
For example, Ethereum started working on a new consensus mechanism to replace the power-intrusive PoW consensus mechanism. It is currently moving towards the proof-of-stake (PoS) consensus mechanism, a more sustainable alternative. And although the change is still underway, it is expected to reduce energy consumption by 99.95 percent.
Instead of using extensive power-hungry hardware, PoS only requires validators to lock a certain amount of the blockchain’s native currency to verify transactions and mine new coins. This consensus mechanism offers the same level of security and transparency with little or no power consumption.
A shift to renewable energy sources
China had about half of the world’s Bitcoin mining operations. After the flash ban, these operations moved to other countries that were more welcoming to Bitcoin mining. However, moving to a suitable geographic location was not the only thing to consider. They knew that wherever they went, regardless of how welcoming the country was, environmental concerns would eventually catch up with them. So many mining companies began looking for sustainable energy sources for their mining operations.
For example, Texas was a city that welcomed miners with open arms. But the city also encouraged miners to experiment with alternative energy sources like wind and solar. They wanted mining companies to set up operations using these sustainable energy sources. Mining companies were also happy to find alternative energy sources as it would change their public perception and allow them to operate efficiently without the restrictions of legislators.
One example is the Houston-based technology company Lancium. Last year, they announced that they would invest $150 million in renewable energy mining plants in 2022.
Invest in green crypto
Investing in green cryptocurrencies can be as simple as choosing a coin that does not use the PoW consensus mechanism, as it is the main culprit behind staggering levels of power consumption. But there are also many currencies that have also incorporated renewable energies into their work model.
Some of these cryptos are:
Cardano: The Cardano network was founded by one of the co-founders of the Ethereum network, Charles Hoskinson. It is one of the best known PoS cryptocurrencies on the market. Unlike PoW blockchains, Cardano does not require immense computational power. It only requires users to dedicate a small amount of the blockchain’s native currency to qualify as miners and mint new coins. This not only makes it less power consuming, but also makes it much easier to scale.
Nano: Founded in 2015, the Nano network aims to provide a sustainable digital payment system for its users. Instead of mining, the network is based on a “blockchain network” technology that creates chains of user blocks for everyone on the Nano network. The amount of power needed to confirm transactions in blocks is so low that it can be compared to the power consumption levels of a common computer. As such, its carbon footprint is almost negligible.
Stellar Lumens: Stellar Lumens is an open source blockchain platform that facilitates a global payment system similar to Ripple. What is unique about Stellar Lumens is that it uses a consensus model that is not only green, but also faster than PoS and PoW. It uses a group of trusted default nodes to verify transactions.
chia: The chia network was created by Bram Cohen, founder of the famous peer-to-peer software download platform, BitTorrent. It uses the unique proof-of-space consensus mechanism that uses computer hard drives and laptops to mine Chia coins. Unlike Bitcoin, it does not use a computer’s processors, leading to lower power consumption.
Algorithm: Algorand is the first pure PoS blockchain. And according to Globe Live Media Finance, Algorand is also one of the first carbon-negative blockchains. The network has established a smart contract that automatically deducts a portion of each transaction fee and sends it to a self-sustainability fund that will be used to cover carbon offset activities. The Algorand blockchain has also found various use cases across industries, making it a viable investment for many.
Samuel Edwards is the name you must have heard many times while reading reports related to Finance, that’s what he is good at. From Major Investments to Stock Market Updates, he got ’em all. Be ready to blow your mind by the mind-blowing reports of Finance World from Samuel Edwards.