Around the middle of 2021 Bitcoin energy consumption came under the public spotlight. This is mostly due to celebrities such as Elon Musk voicing concerns about Bitcoin and specifically Bitcoins mining processes impact on the environment. Despite this however, some cryptocurrencies have been created with the environment in mind, purpose built to have energy efficient mining systems. While some miners have begun setting up 100% renewable mining hardware. In this article we will go into the mining process and how energy consumption became an issue, as well as the cryptocurrencies created to resolve it.
Before delving into the cryptocurrency industry's energy consumption, it seemed necessary to compare it to that of the traditional financial sector. It is worth comparing traditional financial systems to the emerging crypto industry to determine how detrimental to the environment it really is. As per recent estimates Bitcoin uses approximately 113.8 terawatt hours of power per year. For comparison, the United Kingdom in 2005 hit their all time high terawatt per hour usage by reaching 357 terawatt hours. The banking sector globally uses around 263.72 terawatt hours per year. As such, in comparison, Bitcoin does not use anywhere near as much energy as the traditional financial sector despite what you may have heard.
However, 113.8 terawatt hours per year is not inconsequential. The first topic that needs to be addressed when dealing with cryptocurrency and the environment is mining. Not all coins are mined the same way. Bitcoin for example uses the Proof of Work mechanism. This requires miners to use high powered computers to solve ever more complex mathematical problems in order to verify blocks on the blockchain, and as a result be rewarded with BTC. This method does consume a large amount of power. However, as Bitcoin is a relatively new technology, miners and developers from all over the globe have begun to combat this issue using two main methods. New mining processes, and mining hardware that is run exclusively on renewable energy.
As most Bitcoin miners were based in China, most of the energy used to power said miners was produced via coal fired power plants. This was the most major contributor to mining pollution. However, in late 2021, the Chinese government cracked down on Bitcoin mining, making the majority of them flee to surrounding countries to continue operations. Many moved to neighboring Kazakhstan and the US State of Texas. So much so, that in 2019 4% of new Bitcoins were mined in the USA, in 2021 that number was up to 17%. Many miners in these areas are looking for cheaper and cleaner energy alternatives now they are unable to rely on cheap coal fired power. This is an important factor for the longevity of Bitcoin and mining in general.
Along with new mining methods, coins with different validation mechanisms are also important. Since Bitcoin was first created in 2009, new mechanisms have been created in order to avoid the energy consumption of Proof of Work (PoW) mechanisms. An alternative is the Proof of Stake (PoS) mechanism. In short, instead of requiring processing power from computers to mine coins, PoS coins are forged and not mined, and new blocks are validated based on the amount of a certain coin stacked, meaning no extra processing power is required. If you would like to know more about different consensus algorithms and how coins function, visit our previous article on the topic here.
There are multiple examples of Proof of Stake coins, some utilise Proof of Stake for the benefits it brings, such as increased scalability and speed. However, some use Proof of Stake mechanisms purely because it is more energy efficient and better for the environment. An example of a coin built from the ground up with the environment in mind is Algorand (ALGO). Algorand was designed to be more efficient and to avoid the costly mining process while also being scabilibe. ALGO is not the only coin designed with this in mind, EOS, IOTA and Cardanao are also notable additions.
Sustainable and environmentally friendly technologies will only continue to grow in importance as time goes on. Although Bitcoin and cryptocurrency mining mechanisms can be energy intensive, new technologies are always being developed and solutions continue to be found. Miners are adapting to the times and continue to use more sustainable energy methods to power their rigs, while coin developers have not stopped innovating, creating new mining protocols and coins that focus on sustainability and scalability. As a result, the future of mining and cryptocurrency is looking green.