Over the past several months, cryptocurrencies – but most especially Bitcoin – have taken a serious hit from eco-advocates and environmental government agencies. Criticisms focus on how these are mined using energy-guzzling computers, powered mainly by fossil fuels.
Never mind the fact that the industry’s collective worth has already been pegged at $2 trillion. The way it’s currently being mined is seriously contributing to climate change. This has prompted numerous experts to ponder potential solutions for making cryptos greener and more sustainable.
It takes a great deal of electrical power to generate digital tokens. Using a process called “proof of work,” server farms in various parts of the world are racing against each other to produce more. However, the amount of energy that goes into the process is practically enough to power a small country, like Luxembourg or even Ireland, for a whole year.
But why exactly does it take so much power to generate a scant number of tokens? Data scientist Alex de Vries, the Bitcoin Energy Consumption Index creator, explains that much of the energy is consumed in the part of the process where miners try to complete new blocks for the Bitcoin blockchain.
In one key example, he presents a scenario wherein three million machines across the globe are involved in a high-stakes guessing game that causes them to generate around 140 quintillion guesses per second throughout a full day without stopping in order to create the next link in the blockchain. It’s a process that uses a great deal of energy, and de Vries thinks not all cryptos need it.
Kathleen Breitman, co-founder of the blockchain network Tezos, thinks that the Bitcoin need for “proof of work” is already an outdated concept. She cited how cryptocurrencies launched over the past five years do not use the concept. And as a result, they are considered more sustainable alternatives to Bitcoin. In fact, she is wary about cryptos that contribute to what she refers to as “man-made climate change.”
“Using a technology that unnecessarily taxes the environment is something I’m not too inclined to endorse,” she says.
The need for more stringent regulation
It is a controversial opinion to have, but experts begrudgingly agree that government regulation may help mitigate the environmental impact of the crypto industry. According to Paul Prager, power industry veteran and founder of Terawulf, a Bitcoin mining company, two forms of regulation may come into play.
First, governments would demand that cryptos become more transparent and forthcoming regarding the carbon footprint their businesses leave behind. Second, governments may impose a “carbon tax” for cryptos that continue to use fossil fuels in their operations.
However, it’s a known fact that governments tend to drag their heels where new regulations are concerned. Thus, it falls to industry pioneers and professionals to weigh the risks of financial stability and overall sustainability, particularly given climate changes impact on everyone.