Bitcoin alternatives could provide a green solution to energy-guzzling cryptocurrencies
The cryptocurrency bitcoin now uses up more electricity a year than the entire of Argentina, consistent with recent estimates from the University of Cambridge. That's because the creation of a bitcoin, during a process called mining, is achieved by powerful computers that employ night and day to decode and solve complex mathematical problems.
The energy these computers consume is unusually high. Police within the UK recently raided what they believed to be an in-depth indoor marijuana-growing operation, only to get that the large electricity usage that had aroused their suspicions were actually coming from a bitcoin-mining setup.
Thousands of comparable setups, around 70% of which are currently based in China, still demand more and more energy to mine bitcoins. This has understandably prompted environmental concerns, with Elon Musk tweeting in May 2021 that Tesla would not accept bitcoin as payment for its vehicles on account of its poor green credentials.
But there are thousands of other sorts of cryptocurrency, collectively termed " altcoins", which are far greener than bitcoin - and to which investors are now turning. Many of them are trying to use less environmentally damaging technology to supply each coin, which can ultimately herald a greener future for cryptocurrencies.
Altcoins
Of the thousands of "altcoins" within the market, ethereum, solar coin, Cardano, and litecoin have shown promising potential as greener alternatives to bitcoin. allow us to take the instance of litecoin as an example of how they're doing it.
Litecoins are almost like bitcoins, except they reportedly only require 1 / 4 of the time to supply. Where sophisticated and powerful hardware with a huge energy demand is required to mine bitcoins, bitcoins are often mined with standard hardware which needs far less electricity to run.
Other alternatives, like solar coins, aim to encourage real-world green behaviors. One solar coin is allocated for each megawatt-hour that's generated from solar technology, rewarding those who've invested in renewable energy.
Different cryptocurrencies also use different processes to finish transactions. Bitcoin uses what's called a " proof-of-work " protocol to validate transactions, which needs a network of miners to compete to unravel mathematical problems (the "work"). The winner - and therefore the one that mints a replacement bitcoin - is typically the competitor with the foremost computing power.
While proof-of-work is credited for being relatively secure, making it difficult and dear to attack and destabilize, it's incredibly power-hungry. The way it forces bitcoin miners to compete with an ever-expanding arsenal of high-tech computers means it's inevitably come to demand more and more electric power.
But there are alternatives to the present sort of mining. Ethereum, which is that the world's second-largest cryptocurrency behind bitcoin, now uses a special protocol, called " proof-of-stake ". This protocol was specifically designed to deal with environmental concerns about the proof-of-work system, and it does this by eliminating competition between miners. Without the competition, there is no computing power race for miners to participate in.
Given the increasing environmental scrutiny that cryptocurrency is now facing, it's likely that any new altcoins will adopt ethereum's system over bitcoin's. Investors will likewise look to the green credentials of altcoins when deciding which cryptocurrency they'll convert their bitcoin into.
Still the longer term of finance?
Despite the criticisms leveled against bitcoin for its shocking energy inefficiencies, the normal economic system is way from the green itself.
In the five years since the Paris Agreement on global climate change, as an example, it's reported that 60 of the world's biggest banks have provided $3.8 trillion (£2.7 trillion) to fuel companies - not very planet-friendly. One report found that 49% of monetary institutions don't conduct any analysis of how their portfolio impacts the climate.
Then there's the sector's electricity use. Where cryptocurrencies can run without the oversight of huge financial institutions, the banking sector is made upon an enormous amount of infrastructure that naturally burns through an excellent deal of electricity.
Banks themselves use many computers and servers, also as thousands of air-conditioned offices and fuel-guzzling vehicles. It's difficult to estimate exactly what proportion of energy is required to support all this activity, but one recent report found that the banking industry consumes quite twice the electricity that bitcoin does.
So while bitcoin is rightly getting a battering for its outrageous energy consumption, there's ultimately a requirement for all our financial systems to be green and sustainable. Banks can do that by reconsidering their portfolios and dealing with net-zero carbon emissions. But cryptocurrencies offer a special path to greener finance - and therefore the altcoins that consider their environmental credentials could pack up the technology's reputation for excessive energy use.
