At this point, most people have probably heard of Bitcoin. But unless you've purchased cryptocurrency yourself, you may have a lot of questions about how it all works.
What is cryptocurrency?
Cryptocurrency uses blockchain technology to verify transactions. A blockchain is a list of records linked together through cryptography. Because of the way that the blockchain works, the data and transaction records are resistant to tampering and therefore can function as verifiable currency. The same way that you can tell if a dollar is counterfeit by checking for the security thread, watermarks, color-shifting ink and microprinting, one can verify that a Bitcoin is legitimate through its blockchain records.
Bitcoins are created through a process known as mining. According to Bitcoin.com, “Bitcoin mining is an essential component of the network's system for arriving at consensus as to the current state of the ledger.” In order to mine Bitcoin, extreme computing power is required in order to create new blocks in the blockchain updating the state of the ledger. Bitcoin’s security protocols are what make the currency so secure.
Mining coins has extreme environmental impacts
Unfortunately, the computing power required to mine coins is astronomical. According to Investopedia, the network “uses 121 Terawatt-hours of electricity every year...more than the entire country of Argentina.” A recent study done by the University of Cambridge found that coal accounts for about 40% of miner power. According to NBC, a study in the 2019 Joule scientific journal found that “Bitcoin production is estimated to generate between 22 and 22.9 million metric tons of carbon dioxide emissions a year.” That's equivalent to the output of 2.7 billion homes. The energy needs of mining Bitcoins will only increase over time because Bitcoin is a finite resource.
Until recently, most mining (over 60%) has taken place in China. However, China has recently attempted to dissuade Bitcoin mining because of its carbon footprint. Unfortunately, miners will likely try to move operations to other countries. More widespread mining regulations could prevent this from happening. The energy requirements of cryptocurrencies like Bitcoin are unsustainable and pose great threats to the future of the environment.
The hardware used on mining farms has its own environmental impacts: between 8,000 and 12,000 tons of unrecyclable circuits, or e-waste, is generated per year. On top of that, hardware within the mining farm needs to be cooled. According to Columbia Climate School, one plant in New York “draws up to 139 million gallons of fresh water...each day to cool the plant, and discharges it some 30 to 50° F hotter than the lake’s average temperature, endangering the lake’s wildlife and ecology.”
The shift towards environmentally friendly cryptocurrency
Tesla announced in May that they would no longer accept Bitcoin as payment, after purchasing in February a large amount of crypto to use for future projects. This represents a large shift in public awareness towards recognizing the various impacts of cryptocurrency on the environment.
Bitcoin’s biggest competitor, Ethereum, is “set to slash its energy consumption by 99.95% within months as it makes the transition to a new infrastructure model.” The switch to Ethereum 2.0 will be seamless and transformative. Ethereum will be able to cut its environmental impact as a result of a shift from Bitcoin’s “proof of work” mining model and towards a new innovative “proof of stake” validation process. According to The Ethereum Foundation, as of Nov. 29, 2021, the switch to Ethereum 2.0 is in the finalization stage.
Other eco-friendly cryptocurrency options
Many other lesser-known cryptocurrencies exist, and they hope to break into the ever-growing crypto market with an emphasis on sustainability that rivals Bitcoin and Ethereum. One of those is Cardano, created by the co-founder of Ethereum. Cardano has the ability to process 1,000 transactions per second, compared to Bitcoin’s 7. Cardano has the third-largest capitalization in the cryptocurrency market. It has slowly been adopted by a few other platforms, including NFT marketplaces, and with the growing popularity of NFT this could mean great things for the future of the currency. Cardano does all of this on the basis of sustainable, proof-of-stake technology, which makes it one of the most popular green cryptocurrencies today.
Other green cryptocurrencies include:
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Nano (NANO): has one of the lowest carbon footprints
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Stellar (XLM): used by IBM, Nigeria, France and India
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SolarCoin (SLR): gives users SolarCoins in return for using solar energy
These coins are just the tip of the iceberg. The future of cryptocurrency looks promising, especially with increasing emphasis on sustainability.