Is Crypto bad for the Environment?
WHAT IS CRYPTOCURRENCY?
Cryptocurrencies were relatively unknown 10 years ago, but they’ve since become relatively well recognized. There are now several types of cryptocurrencies, and each serves a different purpose. Cryptocurrencies are new digital forms of currency that offer several important advantages over traditional fiat currencies. ‘Crypto’ in cryptocurrency refers to the art of cryptography, which uses highly complex encryption algorithms. These digital assets are designed to be extremely secure, with almost no chance of counterfeiting. They’re also resistant to inflation and easily transferrable.
Peer to peer digital currencies are designed to cut out intermediaries, including banks and governments. This makes transactions in most cases instant and on some chains virtually costless. Other assets like Bitcoin are considered a store of wealth, and are mostly accumulated to be held for long term appreciation. While Bitcoin is undoubtedly the pioneer and the most widely invested cryptocurrency, it has several limitations. After the limitations of bitcoin were discovered, more flexible blockchain networks like Ethereum were created to have more functionalities which paved the way for smart contracts, decentralised finance and non-fungible tokens to evolve.
HOW DOES BLOCKCHAIN WORK?
One of the specialty aspects of blockchain technology is the mechanism of decentralized consensus building which is achieved through the application of various consensus protocols. There are several different types of blockchains and they may use a different type of consensus protocol to validate transactions depending on the needs of their activity. Consensus mechanisms are fault-tolerant mechanisms that are used in computer and blockchain networks to achieve the necessary agreement for a single data value or state of the network among multiple processes or agents. For example, consensus mechanisms are used in cryptocurrencies to ensure that transactions are valid and that there is no double spending. Each of these protocols has its own pros and cons. Most blockchain projects use either Proof of Work (PoWs), Proof of Stake or Delegated Proof Of Stake (DPoSs). All these mechanisms aim to ensure that all participants get identical copies of the distributed databases.
1. Proof of Work (PoW)
Historically, governments just printed more money when they wanted to spend more money. Bitcoin and most other cryptocurrencies however, aren’ t printed at all — they are mined. Crypto mining is the process of how transactions are verified and added to the blockchain public ledger and is also the process of how new coins are introduced into the circulating supply. A miner’s job is to ensure that the blockchain remains intact and isn’ t tampered with. To do so, the algorithm takes the information from each new block and applies a mathematical formula to transform them into a short, random sequence of numbers, letters, and symbols called a hash. At that point in time, both the block and the hash are stored at the end of the blockchain. Since the hash of a block is used to help generate the hash for the next block, it becomes a digital signature that confirms that this block and every following block is legitimate. Proof-of-work is different from the other consensus mechanisms because it requires a lot of energy to complete these algorithms. It also takes a lot of computing power and powerful graphics cards. However, it is the difficulty and cost of proof-of-work that makes PoW the safest and the most secure consensus mechanism.
2. Proof-of-Stake (PoS)
The idea behind Proof of Stake (POS) is to give miners voting power based on the percentage they hold of the total supply of tokens. The bigger their share of the total number of tokens, the more chance they have of being chosen to mine the next block of transactions. However, the proof-of stake mechanism ultimately uses a random algorithm for reaching consensus. The amount of tokens held by each miner is relevant, but several other factors also play a role in determining who will be chosen to mine the next block. The main objective of Proof of Stake is to ensure that the stakers support the blockchain project in the longer term.
3. Delegated Proof-of-Stake (DPoS)
The DPoS mechanism is a more democratic version of the PoS mechanism. Those who have the most tokens are not automatically allowed to confirm or validate any transactions instead all token holders select a group of delegates who will perform this task. The mechanism remains decentralized because all users in the network have the authority to choose which miners they want to use for confirming transactions. The advantage of DPoS over POS is that it has a higher speed of verification and transaction processing, which results in higher scalability.
Is Crypto bad for the Environment?
One of the biggest arguments against of Proof of Work block chains like Bitcoin is their high energy consumption. Mining has historically come under fire for being a ‘waste’ of energy. This is however completely subjective based on who you ask. For some who do not understand the importance of the mechanism, it may be thought so.
There are however, nuances. As in, is it as environmentally friendly as it can be? Absolutely not. But compared to something as frivolous as Christmas lights that also ‘waste’ countless KWhrs for a ‘pointless’ light show…. you may start to be able to understand the value of securing the safest monetary network the world has ever seen…… comparatively. ‘Waste’ is definitely not the correct way to describe it.
Cryptocurrency mining, especially Bitcoin mining, has also become an important aspect of the green revolution, helping push forward environmentally friendly practices of utilizing renewable energy, utilizing excess energy waste and pushing forward innovation including using volcanoes to create energy. There are also miners being integrated into electricity grids, and they’re being used as moderators to help maintain the stability of these systems. Cryptocurrency mining is revolutionizing energy production and has the potential to help improve and stabilize the grid into the future.
If you’re interested in investing in digital currencies, but want to do it in an environmentally friendly way, take a quick look here at some of the cryptocurrencies that are helping the industry forge its own thoughtfully and expediently sustainable path.
Polygon was created to solve problems faced by Ethereum users by reducing fees, improving security and creating a better user experience. Instead of having to deploy large amounts of computing power to mine/verify every transaction on the Ethereum blockchain, Polygon has developed a Proof of Stake (PoS) mechanism where validators stake a certain amount of cryptocurrencies on a smart contract which then delegate the responsibility to validate/ verify transactions based on smart contract rules and the amount of cryptocurrency staked by the validator. By moving transactions off the Ethereum mainnet and onto their own sidechain called MATIC, Polygon can process transactions faster, cheaper and using much less energy.
Algorand is a new cryptocurrency that is completely free of carbon emissions. It has also partnered with Climate Trade, an environmental non-profit that helps businesses reduce their carbon footprint.
Ethereum ‘s co-founder, Charles Hoskinson, Cardano refers to itself as a third-generation blockchain. This cryptocurrency has recently been the target of some backlash over its struggle to gain the kind of momentum that Hoskinson had planned, but it’s still the world’s fifth-largest cryptocurrency.
BitGreen’s app will reward users who record their environmentally-friendly actions, such as using rideshare services, by offering them money. Users will be able to track these eco-friendly activities and earn money for doing so.
Chia is a token that can be mined on the AWS cloud computing platform. It was created by Bram Cohen of Bit Torrent fame. It gives users downloadable applications that let them earn Chia tokens through the decentralized platform on their computer.
DEVVO is an organization that claims that its blockchain can solve problems that other organizations haven’t been able to resolve, including integration with financial institutions, and efficiency. DEVVO claims that it can process eight million transactions per second.
Hedera Hashgraph (HBAR)
Hedera Hashgraph is a new cryptocurrency that’s based on a note-compare protocol that eliminates the need to progress throughout the entire blockchain. Hedera HashGraph’s popularity has been on the rise, having just passed Ethereum (ETH) in terms of number of trades. The technology behind this cryptocurrency relies on a complex algorithm that uses a note-comparing method that eliminates the need for progress through the entire blockchain.
Ethereum 2.0 (ETH late 2022)
The Ethereum Foundation estimates the new version of Ethereum (Ethereum 2.0) will consume 99.95% less electricity when it is completed. The crypto plans upgrades in late 2021 that will allow for sharding, which will fragment the network and in doing so, allow for growth in the number of transactions without an energetic downside.