While cryptocurrencies have become increasingly popular and started to infiltrate the mainstream, there have been concerns raised about the cryptocurrency mining process. The major concern here is the lack of any green credentials. As countries have come together and pledged to reduce carbon emissions, there are worries that the increased interest in cryptocurrencies will have an impact.
When you take a look at the information that has been provided, these concerns are more than understandable. According to the Bitcoin Electricity Consumption Index, one year's worth of bitcoin mining uses more electricity than would be needed to boil the water for every cup of tea in the UK over the next 30 years. The year 2021 also saw Elon Musk level criticism at bitcoin and its impact on the environment.
So, if you’re looking at investing in crypto mining, you may be wondering what the options are if you are looking to get involved with a green industry. As we shall see, this is an industry that has already taken note and is in the process of addressing these issues and repositioning itself. Read on to find out how.
How cryptocurrency mining affects the environment
Before we take a look at just how this industry is already working to address its environmental impact, it's worth exploring what it is about mining that causes those issues in the first place. On a basic level, cryptocurrency mining works by tapping into high-performance computers. It was once the case that miners could use a home PC, along with a CPU, and effectively mine. However, as more people have started mining, and as the mathematical equations that machines are trying to solve have become more complex, more computing power has been needed.
To deal with the changes that mining has witnessed, there needed to be a switch to using high-performance computers. With high performance came an increase in energy consumption. Effectively, what the cryptocurrency mining process sees is:
- A vast number of high powered computers all competing against each other
- High levels of electricity being used to deal with complex algorithms
- Countries using non-renewable energy sources which compounds the problem
How is energy being used for mining?
So, what is it about cryptocurrency mining that leads to all of this energy being used? Many people are aware that crypto mining leads to the creation of new coins, but this isn’t its only function. Just as importantly, it is the mining process that is responsible for verifying transactions that take place and for keeping them secure. It validates the transactions on the blockchain and ensures that there is no double-spending.
As cryptocurrencies are decentralized, there is no one organization responsible for securing the network. They require miners to do this by using the power of their computers. These computers are used to solve complex mathematical equations to validate transactions. Of course, using this power, and time means that miners need an incentive. This incentive is in the form of new coins being generated in return for the work carried out. This means that there is the potential for big gains when it comes to mining.
Bitcoin vs Dogecoin
When the environmental concerns related to bitcoin were raised, people began to explore alternatives. Given that Elon Musk has been vocal in terms of bitcoin, some began to turn to the cryptocurrency that he has long supported - Dogecoin. Is one really any greener than the other?
In terms of bitcoin, the figures can get a little shocking. The Bitcoin Electricity Consumption Index shows that bitcoin mining uses more energy each year than is used in the whole of Sweden, or Malaysia. While this is harmful in itself, the main concern raised by campaigners is that a great deal of cryptocurrency mining, until recently, took place in China - a country heavily reliant on coal.
When Dogecoin was looked at as a greener alternative, it was shown that mining this cryptocurrency used significantly less energy than when mining bitcoin. However, there are arguments that state that Dogecoin has an extremely complex mining process meaning that it is impossible to properly assess.
Can cryptocurrency exist without mining?
What would appear to be an obvious way to do away with the environmental issues linked to crypto would be to abandon mining. However, what would this mean for cryptocurrency and would it be able to continue if mining was abandoned? The short answer is no and that is why mining companies will always have a future. While mining is vital to generate new coins, we have already examined the other vital contributions that miners make.
If cryptocurrency mining came to an end, there would be no way of verifying transactions on the blockchain. This means that there would then be a lesser degree of security as well as an increased risk of double-spending.
How are cryptocurrency mining companies adapting?
While the concerns regarding energy consumption have increased, the good news is that cryptocurrency mining companies haven’t just stood still. Instead, they have explored ways of making the mining process more environmentally friendly. Given what we have seen regarding energy consumption levels, this is no easy task. So, what have these companies been doing to tackle the issue?
Many cryptocurrency mining companies have sought to increase their green credentials by exploring renewable energy. As well as looking into renewable energy, these companies have also begun to examine more energy-efficient protocols as well as looking at how to offset their carbon footprint. China was once responsible for almost two-thirds of all mining and this saw huge concerns surrounding the country's use of coal. With China’s crackdown on crypto, many miners have shifted their operations to the likes of the US and Canada where there is a much heavier emphasis on protecting the environment.
A greener future
With the concerns and criticisms leveled at existing cryptocurrencies and the mining process, a new breed has begun to come to the fore. There has been a clamor to develop cryptocurrencies that still offer the same principles as the likes of bitcoin but come without the huge energy consumption needed in the mining process.
As well as this, there have been cryptocurrency mining companies that have signed up to an agreement to clean up the industry. These companies, along with individuals and those from energy, finance, ad-tech, have signed the Crypto Climate Agreement and pledged net-zero emissions by 2030. What this shows is that mining has a long-term, sustainable future.
With that in mind, let’s take a look at four, newer, cryptocurrencies that have greener credentials than bitcoin.
Cardano is behind the coin ADA. There is one factor that has a significant impact on how environmentally friendly this is when compared to bitcoin: the latter uses proof of work whereas the former uses a proof of stake system. This means that to join the network, they just need to purchase coins, bypassing the amount of energy used by bitcoin.
Cardano is probably the best-known green alternative. Developed by the co-founder of Ethereum, it can process 1,000 transactions per second compared to bitcoin’s seven. Cardano claims that its blockchain can be scaled globally with no risks to security or sustainability.
By taking part of the name, this cryptocurrency positioned itself as the green alternative to bitcoin. Whereas the mining of bitcoin has been highlighted as one of the most damaging to the environment, Bitgreen takes active steps to reward its users for being green.
Bitgreen offers rewards for the likes of drinking sustainable coffee, sharing cars, or volunteering. There are numerous Bitgreen partners where this cryptocurrency can be spent and it can also be traded on exchanges.
We briefly touched on the question ‘Can cryptocurrency exist without mining?’ and concluded that it couldn’t. However, this cryptocurrency has set out to show that mining is not an integral part of crypto and that crypto can exist without it.
IOTA uses an alternative form of technology, known as Tangle. This means that there is no need for mining. It can also be maintained by devices that don’t require the levels of energy that bitcoin does.
The name of this cryptocurrency suggests what it is all about - solar power. This crypto sets out to promote the creation of solar power. Those who generate solar power stand to be rewarded with solar coins. Every megawatt-hour that is produced by solar technology leads to the award of one coin.
In a world where more of us are displaying concerns about how we are impacting the environment, cryptocurrency mining has been left with little choice, other than to adapt. With the likes of IOTA highlighting that crypto can exist without mining, the pressure is on the other currencies to demonstrate that they can clean up their act.
The likes of bitcoin are unlikely to see significant change due to the nature of their mining processes. However, where this is the case, crypto mining companies are still able to make changes and move towards renewable energy sources. While environmental concerns still exist today in regards to cryptocurrency mining, what we have seen is that the future has promise. There has already been a shift towards making this a more sustainable activity and this is set to continue to develop, ensuring the long term future of crypto mining.