Cryptocurrencies are poised for exponential growth. But as the market’s carbon footprint has grown with the trend, does that mean the climate catastrophe must continue? The sustainability record for defi’s digital gold rush has been dismal up to this point. Often, people find this shocking, thinking that because it’s a digital currency, it has no real world consequences to the environment. But awareness and concern is growing, with a larger numberr of people voicing the need for change, and that the blockchain needs to reconfigure how its transactions operate in order to cut energy usage by about 99.99 percent.
What Is Crypto?
Cryptocurrencies are essentially a digital representation of value that aren’t issued by an agency or central bank. They’re solely powered by blockchain technology, allowing the exchange of virtual coins. Cryptocurrency mining creates new coins when someone solves a complex mathematical problem, and the mining process can validate transactions on the network to prove they’re genuine. They become validated by a proof-of-stake or proof-of-work mechanism.
Proof of work means that miners throughout the world compete to solve mathematical puzzles. The winner gets a specific amount of crypto and can validate the transaction. Proof of stake means cryptocurrency owners must validate blockchain transactions via how many coins they put up as collateral to approve the transactions successfully.
Generally, proof of work is more secure, but it consumes more energy and is much slower. The mining activities of Bitcoin blockchains are based on this and use significant amounts of energy. The argument can be made that if all cryptocurrencies switch to the proof of stake alternative, emissions could be cut drastically.
To reduce its carbon footprint, renewable energy sources could also be used to power some of the activity on the blockchain, but all energy grids, renewable or otherwise, also have other very necessary end points for the power they produce, such as powering businesses and homes. However, if blockchain transactions become verified through proof of stake only (a move Ethereum hopes to make), energy consumption could potentially be about 0.01 percent of its original consumption, making sharing the power grid a more viable long term option.
It’s estimated that the Bitcoin network needs 7.46 gigawatts of power per year to run throughout the world. In 2020, average-sized nuclear plants only produced about 1 gigawatt of electrical power. One transaction on the blockchain could theoretically power a single US home for over 70 days.
A US committee found that one Bitcoin transaction adds about 400 kg of carbon dioxide into the atmosphere. Together, Ethereum and Bitcoin mining emits about 70 million tons of carbon dioxide into the air. That’s about the amount of exhaust emissions per year for 15.5 million cars.
One of the biggest issues being raised about crypto’s carbon emissions crisis is the huge potential for a significant increase in cryptocurrency value requiring a similar increase in energy consumption, meaning the impact on the environment could keep growing exponentially, as well.
Even newer areas of the crypto markets, such as non-fungible tokens and decentralized finance, which are based largely on Ethereum’s blockchain, can be pointed to for causing yet more eco-issues. DeFi is a financial system that uses blockchain technology for users to make investments and transactions without using a central mediator, and NTFs are unique digital media pieces stored within the blockchain.
While DeFi just launched in 2017, it already has a value of about $85 billion from 2021. And NFTs’ total sales grew from $74 million to $29.6 billion in one year. NFTs are also often created on the Ethereum blockchain, using the proof of work method to verify transactions; therefore, it takes much more energy to create. And since NFTs are part of the growing metaverse, the energy demand is likely to increase.
Though there are ways that adopting blockchain technology can benefit the environment in the long-term, it’s still important to think about how the earth is being affected now. Overall, the benefits of the blockchain and cryptocurrency continue to climb. It’s just a matter of figuring out how to use less energy to achieve the same or better innovation.
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