In May 2021, the crypto market experienced a major crash that drove the price of bitcoin from its all-time high of about $64,000 to around $31,000. This was partly in response to a tweet from billionaire entrepreneur Elon Musk, about environmental concerns and the effects of bitcoin mining on the atmosphere.
Proof Of Work Consensus And Mining
Bitcoin and many other cryptocurrencies operate on a proof of work consensus algorithm. This means that all the members in each node of the blockchain have to expend significant amounts of energy to solve cryptographic puzzles.
These puzzles when solved, are used to validate transactions, update the state of the network, and mine new coins.
- Proof of work on a large scale requires large amounts of energy. This energy often comes from burning fossil fuels.
- The amounts of energy required to mine bitcoin are equivalent to the amounts required to power entire countries
- The burning of these fossil fuels has been shown to contribute to the carbon footprint of bitcoin-mining, and the depletion of the ozone layer.
Carbon Footprint
Carbon footprint refers to the total amount of greenhouse gas emissions (carbon and methane), produced by the burning of fossil fuels. Cryptocurrency mining farms burn massive amounts of fossil fuel yearly.
- In the US alone, bitcoin mining creates an estimated 40 billion pounds of greenhouse gases. This and a few others were the key concerns expressed by anti-fossil-fuel activists in 2021, that contributed to the crypto market crash.
- The University of Cambridge estimates that bitcoin mining alone consumes about 130 terawatt-hours of energy per year, which easily surpasses the energy consumption of Norway.
- Generating this amount of power requires astronomical amounts of greenhouse gases
Do All Cryptocurrencies Create This Many Environmental Concerns?
The easy answer is no.
Proof of Work, while being the predominant consensus algorithm is only one of many.
PROOF OF STAKE, for example, requires miners to ‘stake’ the coins they currently
own. This gives them the right to receive more coins, proportional to the size of
the coins they previously owned.
They lock their coins away, to create a validator node that can verify transactions.
When a new block needs to be validated, the blockchain chooses a random node and uses that.
Upon successful validation, the node gets rewarded with more coins. An example of a blockchain that operates on a proof of stake, is the Cardano blockchain.
The proof of stake consensus algorithm is less energy-intensive than the proof of work algorithm.
PROOF OF BURN algorithms, on the other hand, are a mixture of the proof of work and proof of stake algorithms. This consensus algorithm tries to address the energy issues that plague the proof of work algorithm.
Under proof-of-burn algorithms, the users ‘burn’ or completely remove a certain amount of coins from existence. In doing this, the users are rewarded with a virtual mine, with a size that is proportional to the size of the coins they initially burned.
A good example of a proof of burn blockchain is that of slimcoin.
In Conclusion
It is important to keep one’s self updated about cryptocurrencies, their benefits, use-cases, and the potential threats they pose to the environment. There are currently plans to reduce or completely remove the environmental concerns that cryptocurrency mining poses by the year 2030.
