The past decade has seen a sudden rise in cryptocurrencies. What began as a crazy idea on the fringe of the economic scene has become a major asset that has kicked the financial world upstairs into a new age. These currencies have recently become one of the most valuable assets in the world market and their progress is set to surge forward. But even though this can be splendid news for investors, the cryptocurrency scene is fraught with troubles just like any other market.
One of the most considerable issues with cryptocurrency is the environmental factor. The mining process is energy-intensive, considering the fact that the mathematical calculations needed to create a single bitcoin are so incredibly complex. Consider this on a global scale, you will soon find that the energy needed to support the cryptocurrency market could be applied to powering a small country for months on end.
Concern over the environmental impact of cryptocurrencies has come to a head and an increasing number of investors have been looking for a way to enjoy the many benefits of cryptocurrency in an eco-friendly way. Of course, it is equally important to consider that no two cryptocurrencies are the same and this goes for their environmental impact as well.
As we have looked at the most eco-friendly cryptocurrencies on today’s markets and focused on what the experts are doing to control the environmental impact they can have.
What is a cryptocurrency?
About a decade ago, no one had even heard the term cryptocurrencies, but it has become more and more commonplace until today the term is a household phrase. Cryptocurrency can best be described as digital or virtual currencies that are based on the art of cryptography and apply highly complex algorithms to encrypt. They are designed to be very secure with no chance of being duplicated or counterfeited. In addition to being resistant to inflation, they are also very easy to carry.
Bitcoin is perhaps the most well-known of all the cryptocurrencies. It is the first decentralized cryptocurrency launched in 2009. It is the product of Satoshi Nakamoto (pseudonym). Actually, the true identity of the designer of Bitcoin is a mystery. There are actually many high-level engineers and scientists claiming they were the brains behind the now world-famous digital currency.
The difference between cryptocurrency and blockchain
Cryptocurrency and blockchain are two terms that are often used frequently and interchangeably, but their meanings are actually very different according to Kane Kalas, the Managing Principal at Crystal Oak Capital. Blockchain is the technology that allows cryptocurrency to operate as it does. Blockchain is the basis for most of the important cryptocurrencies in the world, including Bitcoin.
Bitcoin is not the only cryptocurrency that applies blockchain technology. This digital ledger is applied by many virtual assets. Using advanced cryptography, blockchain connects an extensive list of records, known as blocks. The information within each “block” cannot be altered, because each block is linked to other blocks by the data contained inside. This is an especially high level of security and part of the reason that blockchain technology is so highly regarded and greatly coveted.
The growing popularity of cryptocurrencies
As cryptocurrencies have become more widely known and accepted, they have been recognized by some of the largest organizations in the world. This has led to a spiraling interest in these currencies that have propelled their advance to new levels.
The CEO of Tesla, Elon Musk, has announced that the electric cars being produced by his company would be sold for Bitcoins. Furthermore, Bitcoins would be held by the company rather than converted into currency as is the traditional practice. The announcement has greatly increased the attention being gathered by Bitcoin.
But interest in Bitcoins has only increased. Experts are predicting a rise in many of the very best cryptocurrencies over the coming months and years. But the most important question we are asking today is “will cryptocurrencies continue to transform the financial world and financial systems in the future?” Most experts agree that these digital assets are set for this very purpose.
Are cryptocurrencies bad for the environment?
At a glance, digital currencies don’t seem to pose such a threat to the environment. But the impact of dealing in cryptocurrencies is beginning to unfold and the reality is alarming.
Digital currencies, like Bitcoin, leave a considerable carbon footprint. This is because of the considerable amount of energy required to power the hardware which operates the algorithms upon which their very existence depends. Theoretically, this could be done by a renewable energy source, but in reality, this is not the case. China is the world leader in mining Bitcoins and 60% of the energy used to power its cryptocurrency mining operations comes from coal.
Take a moment to consider the massive scale of cryptocurrencies, and add to this the increasing demand for Bitcoin mining. Only then will you begin to get an idea of the problem we are facing. At the time of writing, blockchain technology uses about as much energy as a small country and this demand for energy is increasing exponentially. As the demand increases so will the need for more energy.
New eco-friendly cryptocurrencies on the horizon
Today, new cryptocurrencies are beginning to appear on the horizon, but there is a trend that is beginning to create a shift in the creation of these newer digital assets: sustainability.
There is increasing popularity of eco-friendly cryptocurrencies. These seek to limit the environmental impact of these transactions, for example, China and IOTA. The farming process used to create Chia doesn’t require the same heavy processing power that is needed for Bitcoin and this means that less energy (~ 0.023 KWh per transaction) is used to maintain its blockchain. In a similar way, IOTA operates on an alternative to Blockchain called “Tangle” and this cancels out the need for miners altogether. The network applies smaller devices and calculations that require a much smaller amount of power, therefore greatly reducing the amount of energy consumed in each transaction (~0.00011 KWh).
Nano is another digital currency that rejects traditional mining practices in lieu of something more eco-friendly. Nano is based on the concept of reducing and eliminating the waste typically associated with cryptocurrency transactions. This is accomplished with the support of a lighter consensus protocol, called Open Representative Voting. This protocol applies maximum efficiency and minimal energy use.