It is not news that, from being esoteric, cryptocurrencies have now become mainstream, with 320 million cryptocurrency users worldwide, according to estimates. Security, ease in transactions, and exponential returns make these lucrative altcoins. However, the disadvantages are marked, one of the most prominent being the environmental impact of crypto mining.
energy consuming coins
According to a report cited by the White House, between 2018 and 2022, the “annualized electricity use of global crypto assets grew rapidly, with estimates of electricity use doubling or quadrupling. As of August 2022, published estimates of total global electricity use for crypto assets are between 120 and 240 billion kilowatt-hours per year, a range that exceeds the total annual electricity use of many individual countries, such as Argentina or Australia. which is equal to 0.4% to 0.9% of global annual electricity use. This is concerning because much of the energy comes from burning fossil fuels, such as coal, “which can lead to greenhouse gas emissions as well as additional pollution,” according to the White House. Among the global cryptocurrencies, Bitcoin and Ethereum (ETH) are the most prominent, accounting for 60% of the total crypto asset market capitalization. According to the report, as of August 2022, Bitcoin is estimated to account for 60-70% of global crypto asset energy use, while Ethereum accounts for 29-39%. It has recommended switching to more environmentally friendly technologies such as proof-of-stake, which “could reduce overall energy use to less than 1% of current levels.”
In what was one of the most anticipated events in the web3 space, Ethereum completed the merger on September 15. In it, the Ethereum blockchain switched from the energy-intensive proof-of-work mechanism to proof-of-stake. “And we’re done! Happy merge, everyone. This is a great time for the Ethereum ecosystem,” Ethereum co-founder Vitalik Buterin tweeted at the time. “The merger will reduce global electricity consumption by 0.2%,” he said in another tweet, quoting “Ethereum researcher” Justin Drake.
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Bitcoin uses the proof-of-work mechanism in which miners mine coins by solving complex math puzzles using high-powered, power-hungry computers. The Ethereum event was called a merger as of December 2020. It started running on two parallel blockchains: a legacy one, the Ethereum Mainnet, which used proof-of-work, and a new one, the Beacon Chain, which used proof-of-stake. The merger combined the Ethereum Mainnet with the Beacon Chain to create a unified blockchain that runs on a proof-of-stake protocol. In this, the miners promise an investment in the digital currency before validating the transactions. To validate blocks, they need to place bets with their coins. An algorithm then chooses the validator who can add the next block to a blockchain, based on how many cryptocurrencies you have staked. Although this eliminates complex computer solving using fast, power-hungry computers, a considerable investment is needed. Therefore, those with more money may have an advantage. For example, an investor must stake at least 32 ETH to become a validator. But with one ETH trading at $1,300, the total investment rises to $41,600, making it expensive. Ethereum’s complete switch to a proof-of-stake mechanism makes it more attractive to environmentally conscious people, as before the merger, its annual energy consumption was equivalent to that of Finland and carbon footprint equivalent to that of Finland. Swiss. But with proof of stake, the latter is expected to drop by as much as 99.95%.
Although Bitcoin’s reliance on fossil fuels for mining has been reduced, it has happened only slightly. According to the latest available data accessed by the Cambridge Bitcoin Electricity Consumption Index (CBECI), fossil fuels made up 62% of its energy mix in January this year, compared to 65% last year. While reliance on coal fell from 47% to 37%, crypto became more reliable on gas, which rose from 16% of its energy mix last year to a quarter earlier this year. At the same time, the role of sustainable energy increased by the least, from 35% to 38%. But hydropower’s share fell from around 20% to 15%.
Low energy consumption
Ethereum has taken a step to address environmental concerns. There are also other cryptocurrencies that use mechanisms that consume less energy. These include Bitgreen, IOTA, Chia, Cardano, Solarcoin, and Nano.