- Cryptocurrency mining is often criticized for its energy usage and carbon footprint.
- By exploring the environmental impact of cryptocurrency mining, there are various potential solutions that could mitigate the impact.
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Whether you are a fervent supporter of cryptocurrency or a crypto-skeptic, there is no debating that the unique currency has brought about radical shifts in the conventional financial system. The number of crypto investors have sky-rocketed in the last couple of years due to low interest rates and huge gains, and the industry only continues to grow.
Despite the enthusiasm of investors and experts who think cryptocurrency is the next frontier in technological innovation, there are rising concerns about potential environmental impact of cryptocurrency mining. Many detractors point out to a major issue that crypto mining consumes significant amounts of electricity.
Keep reading to explore the environmental impact of cryptocurrency mining and some potential solutions to mitigate the climate challenges posed by the digital currency.
Significant Carbon Footprint of Crypto Mining
The massive carbon footprint of the crypto mining is due to the significant computing power required to facilitate the crypto transactions across the blockchain network.
But why does crypto mining have a massive carbon footprint? In order to understand this, we need to dig deeper into some technical aspects of how crypto mining works.
Unlike fiat currencies that are regulated by the federal government and monitored by financial institutions on databases, crypto currencies do not require any central authority. These digital currencies use an anonymous and online public ledger to approve and track their transactions which is maintained by a chain of computer networks. This public ledger called blockchain is the crux of the environmental challenge faced by the industry.
In order to validate the transactions, they are recorded on the blockchain by a process called crypto mining. This process involves solving complex cryptographic equations. Since the process depends on the proof-of-work consensus mechanism, miners require specialized hardware to solve the equations and authenticate their transactions. This procedure is not only incredibly expensive but is highly energy-intensive. Most of the energy that is used to power the mining comes from burning fossil fuels.
While there is no direct way to calculate the total energy consumption of cryptocurrency mining, we can estimate it from the mining rigs and network’s hashrate. The annual CO2 emissions linked with crypto mining are approximately between 22 and 22.9 million metric tons, which is equivalent to the net carbon footprint of countries such as Qatar. Another recent data reveals that Bitcoin alone consumes around 0.13 percent of the total electricity globally.
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Experts predict that the energy consumption of blockchain networks could touch the total energy consumption levels of countries like Denmark by 2025.
Potential Solutions to Address Climatic Concerns
Here are some of the potential solutions that the crypto industry could incorporate in its business models to combat the alarming climatic issues.
One of the recent promising applications of the blockchain network that could address climatic concerns has to be carbon credits. They are an excellent way to encourage emissions reductions by enabling businesses to buy credits from other businesses who have significantly reduced their emissions. Blockchain technology can make this process transparent and secure, guaranteeing the validity of the credits and the precise tracking of the emissions savings.
Crypto Climate Accord
Another potential solution has been the introduction to the Crypto Climatic Accord to resolve the climatic challenges faced by the industry. This initiative aims to accomplish net-zero greenhouse house gas emissions from crypto businesses all over the world by 2040. The accord also aims to employ 100 percent renewable energy sources in the sector.
In this way, the crypto industry and mining activities can reduce the burgeoning carbon footprints and reduce the impact of climatic change.
Key players in the industry including Ripple, ConsenSys and CoinShares have also lent full support to the accord.
The major alternative to proof-of-work currencies is currencies that work on proof-of-stake consensus mechanism as it uses relatively less energy. The PoW mechanism involves a competitive validation procedure to validate transactions and add new blockchains. Industry leaders like Bitcoin rely on proof-of-work, thereby depending on Bitcoin mining rather than proof-of-work which involves staking. Major cryptocurrencies that use proof of stake include Ethereum, Solana, XRP and Polkadot.
XRP and Sustainability
According to Ripple, XRP is an inherently green cryptocurrency which was thoughtfully designed with sustainability in mind.
In one of its blog posts, Ripple carried out a comparative analysis between 1 million transactions of XRP and Bitcoin. Ripple compared that XRP transactions were equivalent to the energy required by 79,000 lightbulbs while Bitcoin transactions were equivalent to the energy required by 4.51 billion light bulbs. According to the claims made by the firm, XRP was 57,000 times more efficient than Bitcoin. Investors and capitalists could, therefore, use XRP to facilitate their cross border transactions. With the SEC vs Ripple lawsuit, once Ripple wins the case, XRP could be a lucrative investment option.
Crypto currencies could contribute towards a sustainable future by leveraging technological advances and prioritizing sustainability in their business models. Investors could use alternatives like crypto assets that make smart energy uses and rely on less energy-intensive mechanisms to mitigate rising environmental risks.
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