Environmental Impact of Cryptocurrency

• We have briefly talked about how crypto impacts the environment and the factors that cause that which is due to the consensus of Proof of Work.
• Proof of work is the most resource-consuming consensus system.
• We have also talked about the next best alternative which is Proof of Stake.

Since the boom of cryptocurrency in 2017, many people started showing interest in mining Bitcoins, and with it also comes a huge cost that we have to pay in terms of depletion of energy and fossil fuels. As we all are aware that electricity is created through fossil fuels and mining bitcoins is a high energy consumption process that can have a heavy impact on the environment. Let’s understand exactly how.

How Does Crypto Affect the Environment?

So Bitcoin is mined through a consensus system known as “Proof of Work” through heavy supercomputers. There is no such regulatory authority for cryptocurrency, so it means there is no one to validate the transactions. The transactions are verified through miners by the Proof of Work consensus.

Large supercomputers are required a lot of energy to run those supercomputers. So these supercomputers solve the cryptographic puzzle or mathematical puzzle, and the first supercomputer to solve the puzzle gets the reward of 6.25 BTC.

Those puzzles are the transactions, and by approving them, the transactions get added to a digital ledger in the form of a block known as Blockchain. However, the proof of work consensus system is quite a high energy consumption process, and miners have to use high computer power, which costs more than $100,000 and requires tons of GPU.

Also, it is a very slow process and on average verifying one transaction takes up to an average of 10 minutes, and the difficulty gets adjusted by the network. It is predicted that all 21 Million Bitcoin will be mined by 2140 and currently over 19 Million Bitcoins are in supply.

We all know that currently, 1 BTC costs around $29,000, and there is no stopping the greed of mining these coins. Due to high mining activity around 2017-18, the prices of GPUs were hiked and there were a lot of shortages of GPUs in the market which impacted gamers and the gaming industry. Companies like Nvidia had to increase their pricing of GPUs. Even a low-tier GPU cost more than what it used to cost.

Is There a Solution to Avoid the Environmental Impact of Crypto

Well surely Bitcoin is quite profitable to mine, and we surely have to pay the cost by sacrificing our electricity and energy. Through a study, it has been found that it takes the entire energy consumption of Switzerland to mine Bitcoin. 

So if we talk about the alternative of mining coins so yes we do have the alternative, and it is known as Proof of Stake, the concept of Proof of Stake was introduced by VItalik Buterin by launching their own Ethereum network. So basically, how it works is some validators validate the transactions, and to become the validator, you have to stake some part of their Ethereum.

In this, validators are chosen randomly, and they do not have to compete with other supercomputers, and anyone can become a validator without the requirement of such heavy investments. Proof of Stake was launched to counter the problem of energy efficiency and a quick process that takes 15 seconds to 5 minutes.