Cryptocurrency has been dubbed as one of the revolutionary forces in the financial world. No one can deny its popularity and the impact it has on the masses. There is a constant effort being made to introduce updates to the underlying technology on which cryptocurrency is based. The idea is to increase efficiency in several use cases where there is a drawback in performance.
However, there is one aspect related to cryptocurrency that has always been the bone of contention among its critics and something that they repeatedly cite when they present their case against the adoption of cryptocurrency.
That factor is its impact on the environment. While cryptocurrency has a vast array of fans, they cannot deny that the resources required in the mining of new crypto tokens have a greater toll on the environment that cannot be denied.
We will look into this article, the challenges faced in this aspect, what can be done to remedy the problem, and look for an acceptable solution that can help reduce the impact crypto has on the environment.
Energy Consumption and the Proof-of-Work Predicament
In our previous work, we have discussed what the Proof-of-Work (PoW) consensus mechanism is and how it is utilized in blockchain technology to verify transactions and make changes to the blockchain. We will now explore why this method, even though it is the most employed consensus mechanism technique, is also considered the biggest culprit when it comes to its implication on the environmental consequences of crypto mining or the minting of new cryptocurrency.
The PoW method, which is also known for being the preferred mechanism employed by the Bitcoin blockchain to mine Bitcoin tokens, has also become synonymous with its voracious energy consumption.
The PoW method involves miners solving complex equations, which gives them the authority to make changes to the blockchain. For their services in completing such tasks, the miners are rewarded with new crypto tokens.
The problem here is that solving these complex equations requires a lot of computational power. If the miners are pursuing their aim of mining as many tokens as they possibly can, then they would resort to pooling all their resources in manufacturing rigs that consist of hundreds or even thousands of computers that are optimized to solve these problems and generate rewards in the form of new cryptocurrency.
For these machines to run around the clock, they also require a substantial and constant supply of electricity. This energy-intensive approach has raised eyebrows, prompting a re-evaluation of the sustainability of such systems.
The scale of energy consumption in cryptocurrency mining is so striking that you will find it surprising to know that Bitcoin mining has been known to consume more electricity than in some countries. If you include the rest of the cryptocurrencies that use the same PoW mechanism as Bitcoin, then you would understand why crypto mining has become a concern for many of the politicians and environmental activists around the world, as they are not something that can have a detrimental effect on the environment.
The reason why some would agree with them is that to fulfil such a high energy demand; electricity suppliers would have to consume more resources to generate sufficient power. Since most of the energy supply is still being provided by utilizing nonrenewable sources, which also include thermal power plants that burn fossil fuels, you cannot disregard its effect on the planet. Therefore, efforts should be doubled in looking for alternative sources of power.
The race is on to find viable alternatives that maintain the security and decentralization features of PoW without the colossal energy footprint. This leads us to the exploration of alternative consensus mechanisms, with the potential to reconcile the decentralized nature of cryptocurrency with a more sustainable energy model.
Transition to Proof-of-Stake (PoS) and the Pursuit of Energy Efficiency
In response to the environmental concerns surrounding Proof-of-Work (PoW) mechanisms, the cryptocurrency community has been exploring alternative consensus mechanisms. While there are many different alternatives to the PoW mechanism, we will discuss the first choice alternative, which is being favoured as the first option in place of PoW, which is the Proof of Stake (PoS) mechanism.
The PoS mechanism relies on validators who are chosen to create new blocks. The validators are determined based on the amount of cryptocurrency they hold and their willingness to stake their crypto for the blockchain cause.
The transition to PoS has been met with optimism toward the goal of reducing the environmental impact of cryptocurrency mining. By eliminating the need for large mining rigs to carry out the computational tasks, the PoS mechanism requires less energy compared to the PoW.
Suppose there is any proof required for the efficiency and the reliability of the PoS mechanism. In that case, it can be given in the form of an Ethereum 2.0 upgrade, which has been dubbed as the stepping stone towards a more environmentally friendly alternative to the PoW. The Ethereum 2.0 is the transition of the Ethereum blockchain from the PoW to PoS.
There are, however, challenges associated with the PoS as well that can prove to be a hurdle for it being widely adopted among the blockchain community, that is its potential to become a more centralized consensus mechanism that can eliminate the fundamental characteristics of the blockchain technology which is its decentralization property, and no major control associated with one single entity.
Despite this, PoS is becoming increasingly popular in the cryptocurrency world. Many new projects are moving from PoW to PoS, and we will likely see more projects doing the same in the future.
Beyond PoS, other innovative consensus mechanisms are also being explored, each with its unique approach to balancing the need for security and decentralization with energy efficiency. A few examples of these consensus mechanisms are the Proof of Authority (PoA), Proof of Capacity (PoC), and Proof of Space etc.
E-waste generation and the Cryptocurrency Mining Hardware Lifecycle
The environmental impact of cryptocurrency isn’t just limited to the utilization of nonrenewable energy resources to generate a large amount of electricity required to run mining rigs; it extends beyond it to the generation of electronic waste (e-waste), which is also becoming a source of concern.
The lifecycle of the mining hardware doesn’t span a large number of years. With newer innovations being made in the technology and hardware that can provide you with a much higher processing power compared to the older generations of hardware, crypto mining controllers are always on the lookout for replacing obsolete components with newer components to achieve more efficiency and quick results in their mining activities.
The drawback is that we are seeing a great number of old components becoming a nightmare to dump as they comprise materials that, if either burned or left in the ocean, can have a very negative impact on the environment.
Discarded mining equipment containing hazardous materials has always been a topic of debate between the supporters of crypto and environmental activists. There is an increasing call being made for responsible disposal and recycling practices within the cryptocurrency industry.
As the demand for more powerful mining hardware continues, addressing the issue of e-waste becomes imperative. Cryptocurrency projects and mining operations are increasingly recognizing the need for sustainable practices in the design and disposal of mining equipment.
Some of the necessary steps that can be taken to tackle the situation include recycling the old components to make new ones so that the waste footprint of these hardware can be reduced. Also, repurposing the mining hardware for other purposes can be considered a very good alternative compared to disposing of it entirely. Such steps can squash the objections of people who are using environmental concerns as a catalyst in their campaign to ban crypto mining operations.
However, these efforts are still in their infancy, and the industry faces a collective challenge in developing and adopting comprehensive solutions to manage e-waste responsibly.
Renewable Energy Adoption and the Quest for Green Mining Practices
The other area of focus where efforts are being made to counter the detrimental effects of cryptocurrency mining on the environment is to search for alternative energy sources. More and more attention is being diverted towards using renewable energy sources that help reduce the carbon footprint of crypto mining.
There are also efforts being made within the mining fraternity that does not want to remain responsible in their participation in using less environmentally friendly resources to power their mining rigs, and they are working to employ better alternatives like shifting to solar panels or wind-powered turbines.
This transition not only aligns with global efforts to combat climate change but also addresses the criticisms surrounding the carbon intensity of cryptocurrency. The geographic flexibility of cryptocurrency mining allows operations to be established in areas abundant in renewable energy, contributing to the decentralization ethos while minimizing the environmental impact.
While it looks like shifting to these resources can help eliminate the problem of crypto mining becoming more environmentally friendly, it isn’t as easy at all. The main problem with renewable resources like wind-powered turbines is that it requires a great cost to set up such a system and relies mostly on the weather conditions to be favourable for the constant generation of electricity, which isn’t the case.
Solar panels also look like a very good alternative. Still, the problem with it is that it also has a great installation cost and requires a lot of panels to be installed in a large area for it to be effective in providing the needed power. Also, at night, when they don’t work, you need a battery backup where you can store the excess energy generated during the daytime so that your mining operations don’t halt. Efforts are being made to make such technologies less expensive and more efficient, but it will require some time before we get there.
Striking a balance between consistent energy supply and reducing dependence on fossil fuels remains a focal point for the cryptocurrency community. Innovations in energy storage technologies and the integration of smart grids may hold the key to addressing these challenges and making green mining practices a widespread reality.
Regulatory Responses and Industry Initiatives
Regulatory authorities and government officials have also jumped into the debate of how to reduce the impact of cryptocurrency on the environment. Some sources have decided to introduce regulations that wouldn’t allow the carbon footprint of crypto mining to increase from a certain threshold. In contrast, others have introduced guidelines that require these mining firms to shift to alternate resources to reduce their high energy requirements and become more environmentally friendly. Another option, which might sound like the authorities are heading towards a harder stance, is to limit cryptocurrency activities in areas that mostly use nonrenewable energy.
At the same time, the cryptocurrency industry is not just sitting back and doing nothing. Many projects are taking steps to be more open about how much carbon dioxide they create, which helps people see how much they’re impacting the environment. Others are actively working on new technologies to make cryptocurrency use less energy.
Conclusion
There is no denying the fact that the most popular cryptocurrency, Bitcoin, is still using the PoW mechanism, which means that whatever steps are being taken by the rest of the blockchain world to make it more environmentally friendly will not be enough because Bitcoin is still the most popular blockchain among them all and is responsible for most of the energy resources required to carry out the mining tasks.
It is also imperative to note that because the validation process of the Bitcoin blockchain is energy-intensive, competitive, and rewards-based, it is unlikely that Bitcoin will reduce its energy footprint. However, this doesn’t mean that we can’t make efforts on other avenues to minimize the overall effect of cryptocurrency on the environment. Using alternative energy resources and finding better solutions to reduce the carbon footprint of this industry is the way to go forward, and efforts are being conducted to ensure that the industry heads towards becoming more environmentally friendly.
