Over the past decade, cryptocurrency ascended from being a hobby to the best asset class of the year, attracting major corporations and millions of independent investors to its cause. While fears over retaining fiat wealth amid the pandemic were arguably the catalysts for the recent bull run, the growing influence of blockchain technology can also be credited for crypto’s success. In the past few months, companies like Tesla, PayPal, Visa, and more jumped in on the crypto bandwagon, offering services that encourage consumers to transact within the ecosystem.
However, less than two months after Elon Musk announced Tesla’s new Bitcoin payment feature (which was expected to see worldwide adoption within the year), the multibillionaire backed out and took to Twitter to express his concerns about the coin’s impact on the environment. Bitcoin has historically been at the centre of the sustainability debate, garnering criticism for its massive carbon footprint due to the energy-consuming process of mining new BTC. Following the scandal, BTC prices dropped by $20,000 in two weeks—silently urging the crypto space to focus on sustainability.
How Energy is Wasted Through Proof-of-Work
Bitcoin’s battle against sustainability stems from the Proof-of-Work (PoW) consensus model, a decentralised mining process that allows the community to participate in validating transactions on the network with the incentive of earning BTC. As one of the highest-priced cryptocurrencies on the market, the minefield has naturally become saturated with millions of miners—more than the network needs to successfully operate without a central administrator. There are three main problems with this model.
- Rather than benefiting the blockchain, a highly congested network slows it down, causing transactions to take longer than usual to process. A huge backlog of transactions has resulted in higher gas—or processing—fees, making PoW coins slow and expensive to transact with. This issue negates the purpose of crypto, which originally aimed to become an instant peer-to-peer and borderless transaction ecosystem for the people.
- The PoW only rewards one miner, even if millions are competing for the block reward. However, the only way to gain an edge in the computing process is to rely on more powerful computers, which require high-end graphics cards to elevate their functions. It has caused a demand for dedicated ASIC mining rigs—which consume massive amounts of energy—and a global graphics card shortage.
- Tech and electricity giants benefit the most from the PoW model, which favours miners with access to the resources required to run powerful and energy-consuming computers. As a result, while BTC mining is theoretically decentralised, most of the operations are centred among a few large corporations, from coal plants to graphics card manufacturers.
A Snapshot of Unsustainability
The most popular mining rig available today uses thousands of watts per hour, while the average American household consumes about 1,130 kWh annually. As a result, Bitcoin mining cumulatively consumes more energy than Ireland and many other countries. But it’s not just the excessive fossil fuel consumption that’s causing outrage.
In particular, mining rigs—which help eager miners gain an edge over the competition—are treated as cyclical resources. As technology continues to advance at a lightning-fast rate, the lifetime of hardware decreases, prompting miners to discard and replace old rigs on the same wavelength as smartphones. It’s estimated that every year, Bitcoin generates about 8.4 kilotons of e-waste. And that’s just Bitcoin. There are plenty more PoW-based coins on the market, from Ethereum to Litecoin.
Rejection From Larger Institutions
Larger institutions are now taking action against unsustainable cryptocurrencies, with Bitcoin at the forefront of their concerns. For instance, El Salvador recently announced plans of adopting BTC as legal tender within a few months, subsequently requesting the World Bank’s aid in their bid. However, the latter adamantly refused, citing the environmental concerns and speculative nature of the coin as unsustainable for widespread use.
There have been discussions over how the environmental footprint of crypto mining can be reduced. The Bitcoin Energy Consumption Index, for example, estimates that if bitcoin miners were to use renewable energy sources like solar power or wind in their operations instead of traditional coal and other fossil fuels, then they could reduce the carbon emissions by about 33%.
However, many investors are taking things into their own hands with alternative solutions—there’s now an industry-wide hunt for sustainable cryptocurrencies, even if mining is taken out of the picture.
Seeking Alternatives Utilising The Proof-of-Stake (PoS)
The Proof-of-Stake (PoS) consensus model is an alternative to the Proof-of-Work system. It’s a process wherein investors must surrender a number of coins to the system, where they would then be used to power the blockchain, allowing it to validate transactions. Depending on the PoS model, all or some users may be assigned to nodes, allowing a fully decentralised system to operate without the commitment of expensive and high-end technology.
Oftentimes, the creator of the next block is chosen in a deterministic way according to their stake: whoever has more coins gets selected more often than someone with a smaller stake. As such, staking pools have been established to help small investors win rewards without a massive financial commitment. This system guarantees all stakers an annual reward through interest—much like a traditional bank account. Recent innovations have also allowed players like the TPR crypto to offer stake rewards without surrendering any coin to the system by compounding the balance in a dedicated wallet daily.
Popular PoS coins include Cardano (ADA) and Algorand (ALGO), but Ethereum (ETH) is also notably transitioning to this algorithm upon the blockchain’s upgrade.
Environmental Concerns Over New Coins
Chia has recently gone viral for its extremely innovative approach to the traditional “proofing” consensus models, combining the Proof-of-Space and Proof-of-Time with a process that doesn’t use nearly as much computational effort as Bitcoin. Instead, miners are called farmers, who “plot” land by storing data in hard drives. A bingo-like challenge is then broadcasted by the network. Farmers’ computers must find a string of data that closely resembles the broadcasted hash—and the owner of the most similar numbers win.
In theory, Chia wonderfully eliminates all of Bitcoin’s downsides from its network while introducing a new way of achieving consensus among investors. Unfortunately, however, the network has obtained its fair share of criticism—primarily as it has introduced yet another e-waste sink to the planet. In particular, Chia has been attributed to the recent global shortage of hard drives, including the coveted SSDs used in gaming computers. As owning more storage space will merit “farmers” greater winning chances, the situation is slowly escalating to levels similar to the graphics card dilemma caused by BTC miners.
Ultimately, investors are forced to swallow another layer of unsustainability by investing in Chia, which has been dubbed as a “greener Bitcoin” despite its potential to create massive hardware waste.
Is Achieving Sustainability Possible?
Enthusiasts have established that cryptocurrency will be the future of finance—but it must first prove to be a resource sustainable enough for widespread adoption and long-term use. While there have been plenty of sustainable coins introduced to the market—particularly PoS coins—it’s also important for new players to take a more sustainability-forward approach in building the foundations of the underlying blockchain technology.
Innovations, from the Hedera Hashgraph network to automated staking, have been quietly addressing the situation. However, gaining investment leverage is an issue: smaller cryptos don’t come with price tags as large as Bitcoin’s or a name as widespread as Ethereum. As a result, the industry demands not only effort among developers to mitigate the sustainability concerns surrounding cryptocurrency. Investors also need to increasingly scrutinise coins before making a purchase or joining a network.
Trisha Renolds is an Accounting and Finance graduate at the University of New South Wales specializing in Blockchain and Cryptocurrencies.
See more from Trisha: https://thetopcoins.com/