In recent years, cryptocurrency (crypto) has become a widely adopted financial technology, loved by many for decentralising finance and creating wealth-building opportunities through crypto trading.
However, the energy-intensive processes behind the technology have raised serious concerns about its environmental responsibility. This raises the question: can cryptocurrencies evolve into a technology that’s sustainable, as well as innovative? We explore this topic below.
Crypto’s massive energy consumption
Many cryptocurrencies consume large amounts of energy due to their mining processes. For example, a UN study revealed that global Bitcoin mining emitted over 85.89 Mt of CO2 during 2020-21, a quantity greater than that of many countries.
The main cause of this enormous energy consumption is the Proof-of-Work (PoW) consensus mechanism that many cryptocurrencies use to validate transactions. Miners compete to solve complex mathematical puzzles, with the winner earning the right to add a new block of transactions to the blockchain.
Several factors contribute to PoW’s high energy consumption. The difficulty of the puzzles means that solving them requires miners to use vast amounts of processing power, with competition between miners further exacerbating the issue.
Moreover, the difficulty of the puzzles increases as more miners join the network, requiring even more computational power, and miners often run their operations 24/7 to maximise their chances of success.
Proposedsustainability solutions
However, the cryptocurrency industry is well aware of the environmental impact of crypto mining and is actively working on solutions. Perhaps the most significant of these is the Proof-of-Stake (PoS) consensus mechanism, a more sustainable alternative to PoW.
Instead of tasking miners with solving complex mathematical puzzles, PoS determines validators based on the amount of cryptocurrency they stake. This eliminates the energy-intensive aspects of mining, such as the need for high computational power, specialised mining equipment and high-stakes competition.
Another approach would be to transition mining operations to renewable energy sources. Currently, only 32% of global Bitcoin mining’s energy demand is powered by renewable sources, meaning there are significant opportunities for improvement in this area.
On the other hand, carbon offsetting could help significantly reduce crypto’s environmental impact.Yet with 3.9 billion trees needed to offset Bitcoin’s footprint from 2020-21 alone, which would cover an area almost equal to the size of Switzerland or Denmark, it’s safe to say this last strategy would work better as part of a holistic strategy than on its own.
Can crypto become sustainable?
The future sustainability of cryptocurrencies mainly hinges on the industry’s ability to move away from energy-intensive mining practices. The Proof-of-Stake consensus mechanism has the potential to eliminate the computational arms race of Proof-of-Work, while renewable energy sources and carbon offsetting offer a way to reduce carbon emissions as this transition takes place.
While challenges remain, the industry’s active pursuit of sustainable solutions promises a more environmentally responsible future for cryptocurrency. However, only time will tell whether this promise is fulfilled.