Cryptocurrency bitcoin now consumes more electricity per year than all of Argentina, according to recent estimates from the University of Cambridge. This is because the creation of a bitcoin, in a process called mining, is produced by powerful computers that work day and night to decode and solve complex mathematical problems.
The energy that these computers consume is exceptionally high. British police recently raided what they believed to be a massive indoor marijuana grow operation, only to discover that the massive electricity consumption that had aroused their suspicion was in fact a bitcoin mining setup.
Thousands of similar setups, of which around 70% are currently based in China, continues to demand more and more energy to mine bitcoins. This naturally sparked environmental concerns, with Elon Musk Tweeter in May 2021 that Tesla would no longer accept bitcoins as payment for its vehicles due to its low ecological credentials.
But there are thousands of other forms of cryptocurrency, collectively referred to as “altcoinsWhich are much greener than bitcoin – and to which investors are turn now. Many of them are trying to use less environmentally damaging technology to produce each coin, which could ultimately herald a greener future for cryptocurrencies.
Altcoins
Among the thousands of “altcoins” on the market, ethereum, solar room, cardano and litecoin have shown promising potential as greener alternatives to bitcoin. Let’s take the example of litecoin as an example of how they do it.
Litecoins are very similar to bitcoins except that they would only need A quarter time to produce. Where sophisticated and powerful hardware with colossal energy demand is needed to mine bitcoins, litecoins can be mined with standard computer hardware that requires much less electricity to operate.
Other alternatives, such as solarcoin, aim to encourage real-world ecological behaviors. A solarcoin is allocated for every megawatt hour which is generated from solar technology, rewarding those who have invested in renewable energy.
Different cryptocurrencies also use different processes to make transactions. Bitcoin uses what is called a “proof of work“Protocol for validating transactions, which requires a network of miners competing to solve mathematical problems (the” job “). The winner – and the person who hits a new bitcoin – is usually the competitor with the most computing power.
While Proof of Work is considered relatively safe, making it difficult and expensive to attack and destabilize, it is incredibly power hungry. The way it forces bitcoin miners to compete with an ever-growing arsenal of high-tech computers means that it has inevitably come to demand more and more electrical power.
But there are alternatives to this form of mining. Ethereum, which is the second largest cryptocurrency in the world behind bitcoin, now uses a different protocol, called “proof of participation”. This protocol was specifically designed to address environmental concerns regarding the proof of work system, and it does so by eliminating competition between minors. Without competition, there is no computer power arms race in which miners can participate.
Given the growing environmental scrutiny the cryptocurrency is now facing, it is likely that any new altcoin will adopt Ethereum’s system rather than Bitcoin’s. Investors will also look at the green credentials of altcoins when deciding which cryptocurrency to convert their bitcoin into.
Still the future of finance?
Despite criticism of bitcoin for its shocking energy inefficiencies, the traditional financial system is far from green itself.
In the five years since the Paris Agreement on climate change, for example, 60 of the world’s largest banks are reported to have provided $ 3.8 trillion (£ 2.7 trillion) to fossil fuel companies – not very planet friendly. A report found that 49% of financial institutions do not perform any analysis of their portfolio’s impact on the climate.
Then there is the electricity consumption of the sector. Where cryptocurrencies have the potential to operate without the oversight of large financial institutions, the banking industry relies on a huge amount of infrastructure that naturally consumes a lot of electricity.
Banks themselves use many computers and servers, as well as thousands of air-conditioned offices and gas-guzzling vehicles. It is difficult to estimate exactly how much energy is needed to support all of this activity, but a recent report found that the banking system consumes more than twice as much electricity as bitcoin.
So, while bitcoin rightly suffers its outrageous energy consumption, it is ultimately necessary that all of our financial systems be green and sustainable. Banks can do this by reconsidering their portfolios and striving to achieve net zero carbon emissions. But cryptocurrencies offer a different path to greener finance – and altcoins that focus on their environmental credentials may well clean up the tech’s reputation for excessive energy consumption.
Article by Sankar Sivarajah, director of a management school and professor of technology management and circular economy, Bradford University and Kamran Mahroof, assistant professor, supply chain analysis, Bradford University
This article is republished from The conversation under a Creative Commons license. Read it original article.
