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Is the crypto boom contributing to climate change? | TICKER VIEWS
Elon Musk recently tweeted that Tesla is going to pull support for Bitcoin over environmental concerns. This sent Bitcoin prices tumbling, and also has raised questions about the sustainability of cryptocurrency. So, can cryptocurrency ever be sustainable?
Why does Bitcoin mining use so much energy?
When people speak about the energy cost of cryptocurrencies, they’re usually talking about the impact of mining Bitcoin.
Bitcoin miners use a computer to solve increasingly difficult algorithms which form the blockchain. The trick is to get all miners to agree on the same history of transactions for the blockchain.
This mining process requires a significant amount of computing power, which in turn requires large amounts of electricity. This can pose an environmental issue when the miners use fossil fuels.
However, the large amounts of energy consumption required to mine Bitcoin is majorly a product of its increasing popularity, rather than being an inherent design element, says Liam Bussell from BANXA.
“If we could go back to 2013 you could mine with a computer at home and it would be profitable. It would not be today, because this hardware arms race is driven by incentives. The mining machines get more and more powerful.”
Liam Bussell, Head of Communications at BANXA
Is a carbon neutral cryptocurrency possible?
With this in mind Bussell says a carbon neutral cryptocurrency is theoretically possible if the miners use clean energy rather than fossil fuels.
Better, more energy-efficient blockchain mechanisms also could help this transition.
Although Bitcoin mining does require large amounts of electricity, it’s ultimately up to the individual miner whether they use renewable energy to power this process.
How does Bitcoin’s carbon footprint compare to traditional currency?
On the other hand, it’s important that we keep these discussions in the perspective of our current systems.
Rory Manchee from Brave New Coin argues that traditional fiat currencies also use considerable amounts of energy to mine and process the materials used in the production of notes and coins.
So how does Bitcoin stack up?
Let’s take VISA as an example. Digiconomist reports that Bitcoin uses far more energy than VISA. Also, the energy used by VISA is relatively “greener” than the energy used by the Bitcoin mining network.
“If we“We could just realise that the current banking system uses vastly more power, and H&M and Nike get cotton from China and that damages the environment too. If we look at this objectively, with bias, blockchain doesn’t use that much electricity.”
Liam Bussell, Head of CommuLIAM BUSSELL, HEAD OF COMMUNICATIONS AT BANXA
How can cryptocurrencies reduce their energy output?
The reason that Bitcoin mining is so energy-intensive is majorly down to a process called proof-of-work.
However, some experts are already in the process of replacing this with the more energy-efficient proof-of-state. In this model, coin owners create the blocks rather than the miners. This negates the need for the computational heavy-lifting we currently see.
Are all cryptocurrencies equally harmful to the environment?
Different types of cryptocurrency are mined in different ways. Therefore, some currencies are more energy-reliant than others.
For example, Ethereum mining uses far less energy than Bitcoin mining.
Ethereum also has plans to change its proof-of-work algorithm to an energy efficient proof-of-stake algorithm called Casper.