The high levels of computer processing power needed to mine cryptocurrencies have environmentalists concerned. Cryptocurrency mining uses powerful computers that compete to verify transactions in exchange for tokens. A large amount of electricity is used to power complex algorithms. For this, non-renewable energy sources such as coal are used.
Cryptocurrency mining debate
This is nothing new, the debates around cryptocurrency mining via Proof-of-Work are numerous. On the one hand the detractors and on the other the pro-bitcoins who are campaigning in favor of this new method of consensus.
According to a study by the Intergovernmental Panel on Climate Change (IPCC), global carbon emissions must be reduced by 43% by 2030, to limit the increase in average temperature to 1.5 degrees Celsius. This means that if we want to have a viable future, we must act now and avoid climate catastrophe.
During 2022, the European Commission and Swedish regulators discussed banning Proof-of-Work (PoW) cryptocurrency mining. Although the European Parliament’s Committee on Economic and Monetary Affairs voted against an outright ban, it highlighted the environmental impact of PoW mining.
Meanwhile, in the US, a group of more than 20 lawmakers, all Democratic members of the US House of Representatives, signed a letter to the head of the Environmental Protection Agency (EPA). They insist on their apprehension about the impact of cryptocurrency mining on the environment. They claim that Bitcoin (BTC) mining used an inordinate amount of energy, but that it was also impacting residents.
According to data from Digiconomist’s Bitcoin Energy Consumption Index, an online tool created by data scientist Alex de Vries, the carbon footprint of Bitcoin, the world’s largest cryptocurrency, is identical to that of New Zealand. The two activities emit almost 37 megatons of carbon dioxide into the atmosphere each year.
How does cryptocurrency cause environmental change?
To understand the problem, it is important to describe what happens in the creation of a cryptocurrency like Bitcoin. Unlike fiat money, which is regulated by central banks, Bitcoin transactions are tracked through a public ledger made up of a worldwide computer network: the blockchain.
Crypto “mining” is a process in which computer puzzles are cracked to confirm transactions between users. Once validated, the transactions are then added to the blockchain. This process allows for validation, after an energy-intensive process.
Another sector shaken by digital assets is the art sector. These digital artworks made headlines. They are sold through the use of non-fungible tokens, more commonly known as NFTs, a type of collateral backed by the Ethereum blockchain.
In the simplest terms, works are created or “minted” through a process called proof-of-work (PoW). This concept guarantees a unique identity for each piece. Since cryptocurrency mining has become a global industry, the electricity needed to power those millions of computers has skyrocketed.
Developments to make cryptocurrency mining more environmentally friendly
Bitcoin is unlikely to move away from PoW. Therefore, miners need to find and confirm that they are using renewable energy for cryptocurrency mining. In 2022, Tesla, Block and Blockstream announced they would build a solar-powered Bitcoin mining farm in Texas.
In recent years, we’ve also seen many projects move to more environmentally friendly consensus mechanisms like Proof of Stake (PoS). In this process, users lock their own tokens to create validator nodes and verify transactions.
Ethereum, the second largest cryptocurrency by capitalization, has completed the transition to Proof of Stake. PoS is a more environmentally friendly process. This will cause a staggering 99.9% drop in Ethereum energy consumption.
Qtum, a PoS blockchain that makes the most of Bitcoin and Ethereum. It offers faster and safer transactions. It recently announced a partnership with Binance Charity to plant 100,000 trees. Indeed, it aims to become an entirely carbon-neutral protocol. As a PoS blockchain, it uses minimal electricity. The planting of trees, on the other hand, should compensate for the emissions caused by electricity for the functioning of the validation nodes. Qtum estimates that 100,000 trees planted will offset all emissions caused since its main grid went online in late 2017, and possibly more.
The Crypto Climate Accord (CCA) has over 250 signatories, including Qtum. They are looking to become fully carbon neutral by 2030 and decarbonise the cryptocurrency industry by 2040.
The cryptocurrency industry has started to recognize the importance of reducing its carbon footprint. Responding to the needs of the moment, it has already taken substantial actions to reduce its carbon footprint. Environmental protection is a collective goal. Maintaining accountability through initiatives like the Crypto Climate Accord (CCA) will help them reduce their emissions. There are many ways to achieve carbon neutrality, but industry will need a collective and dedicated effort to get there.
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