How to Identify Good Green Parts
As cryptocurrency goes mainstream, everyone is talking about its impact on the environment. A single Bitcoin transaction has a larger carbon footprint than 100,000 hours of YouTube videos. It’s not just Bitcoin’s problem. Almost all other crypto coins that operate on the Proof-of-Work (PoW) consensus mechanism face the same problem: they consume more power.
But there are ways to make cryptocurrency and NFTs more sustainable. Some, like Ethereum, have plans to move towards a more eco-friendly environment model in the future, while others are taking serious steps to drift towards greener modes. Investors are now betting big on cryptocurrencies that focus on environmental, social, and governance principles, making eco-friendly coins a lucrative investment.
In this week’s column, we explain how cryptocurrencies can go green and how to identify these coins.
Mining: an energy-intensive operation
Before delving deeper into the subject, it is important to understand how cryptocurrency mining consumes energy.
Cryptocurrencies use huge amounts of electricity to secure their networks. This is done through something called crypto mining. Mining cryptocurrency is not just a way to add or create new parts. Crypto mining also involves validating cryptocurrency transactions on a blockchain network and adding them to a distributed ledger.
Mining consumes a lot of computing power and resources due to the proof-of-work (PoW) algorithm. To mine crypto, specialized mining computers compete to solve complex mathematical equations that unlock small amounts of new currency. These computers, located around the world, generally operate without interruption and require huge amounts of electricity to keep running and cooling.
According to Digiconomist, Ethereum consumes about 112 terawatt hours of electricity per year, comparable to that of the Netherlands and more than the Philippines or Pakistan use during the same period. A single transaction on Ethereum is equivalent to the electricity consumption of an average US household for more than nine days. A single Ethereum transaction is also equivalent to the energy consumption of over 1,50,000 Visa card transactions.
In Bitcoin’s case, it’s even higher – 137 terawatt hours of electricity per year.
As the popularity of coins increases, the number of miners needed to maintain the cryptocurrency network also increases, which ultimately increases the carbon footprint and affects the environment.
Identify a durable crypto
To choose a durable coin for investment, the first and main rule is to keep in mind how a particular coin is mined. Every cryptocurrency runs on a blockchain. Identify the nature of the blockchain being used, whether it is Proof of Stake (PoS) or PoW.
Bitcoin, Ethereum and Dogecoin, all work on a PoW consensus mechanism, which means that crypto-miners compete to solve an algorithmic puzzle, using specialized high-end computers, designed for mining. The more computing power you have, the easier it becomes to mine a part. This computing power is also called hash rate. To further increase their chances of winning, miners can come together in so-called mining pools, they combine their hashing power and distribute the rewards equally among all members of the pool, ultimately forcing miners to use huge amounts of electricity.
Meanwhile, the PoS consensus mechanism terminates the element of competition and replaces it with a random process called —staking. This means that mining machines are not required, reducing energy consumption by up to 99%.
But there are plenty of reasons to be skeptical of these claims. It is therefore important to do your research on the coin before investing in it. A quick look at the white page and company website might help. It generally informs about the energy consumed by the digital part.
You can also check the carbon footprint generated by a crypto project. This is usually listed on the community’s blog page. There are specialized sites that can check this for you. Also check to see if the company has any greenwashing efforts, but make no mistake about it.
How can crypto become more sustainable?
There are several factors to consider when monitoring the impact of a cryptocurrency – power consumption is one of the most frequently mentioned. However, it is not about which cryptocurrency drains the most energy. It is also about knowing where the power comes from.
Some mining operations like Equinor and Crusoe Energy have repurposed unused traditional power plants and are using the excess gas released from these plants to power mining operations. Solar and wind farms are also used to power crypto-mining factories.
It’s probably not the best idea to build renewable power plants to power a cryptocurrency factory due to the volatile nature of cryptocurrencies. The simple reason is that Bitcoin’s value tends to stay high even when it swings, but other cryptos might not be able to justify the cost of entirely new power plants just to operate them.
Meanwhile, several crypto developers and advocates are making efforts to ensure the sustainability of the blockchain and crypto ecosystem.
Newer crypto developers are looking for more power-efficient designs that use far less power than their predecessors.
Some of the most environmentally friendly cryptocurrencies are:
Developed by one of the co-founders of Ethereum, Cardano is a PoS cryptocurrency considered one of the most environmentally sustainable blockchains.
According to Cardano, it only uses 6 GWh of electricity, so it is a “balanced and sustainable ecosystem”. It is also said that Cardano could be 37,500 times more energy efficient than Bitcoin.
Another coin is Stellar, it is also considered one of the most energy efficient. The Stellars Blockchain Network uses its cryptocurrency lumen (XLM) to facilitate global payments. It’s even faster than PoS. The blockchain network even allows people to trade fiat through its network, without high transaction fees or longer transaction times.
Finally, the Solana blockchain is the most widely adopted coin and is extremely energy efficient. A transaction on the Solana blockchain network consumes less energy than two Google searches and 24 times less energy than charging your phone.
On Solana, there is no need for energy-intensive mining, which means the network is extremely environmentally efficient. Activities on Solana require a lot less energy than you might think. In total, the entire Solana network – with 1,196 validating nodes and around 20,000,000 transactions – uses around 3,186,000 kWh per year. This is the equivalent of the average electricity consumption of 986 American homes.
Indeed, pointing out that any cryptocurrency is greener than others is an incredibly complicated task since several parameters have to be taken into account. Many smaller cryptocurrencies inherently have a much lower energy footprint because they involve far fewer daily transactions than Bitcoin or any other major crypto. Once scaled, they could prove equally disastrous for the environment.