Cryptocurrency Mining: What Is the Environmental Impact of Digital Assets?
While an increasing number of people around the world are warming to the notion of cryptocurrencies, there are a number of worries about their widespread acceptance as a means of payment. The argument against cryptocurrencies, in addition to the lack of centralised regulation, is that they have the potential to harm the environment. Consider Bitcoin, possibly the most widely used cryptocurrency on the planet. Despite being lauded as a game-changing instrument for transactions, it has fallen out of favour with one of its most ardent supporters, Tesla founder Elon Musk, who cited the environmental impact of Bitcoin as a justification for switching to Dogecoin, another popular cryptocurrency.
What impact does it have on the environment?
“The energy usage trend (over the past several months) is insane,” says Elon Musk. Musk was alluding to the amount of energy necessary to create Bitcoin through "mine." High-powered computers compete to solve complicated mathematical riddles in an energy-intensive process to mine cryptocurrency. In most situations, fossil fuels, mainly coal, are used in this procedure. To put things in perspective, analysts at Deutsche Bank estimated that if Bitcoin were a country, it would need roughly the same amount of electricity as Ukraine each year.
Another cryptocurrency, Ethereum, uses as much power as the entire country of Switzerland in a year, Digiconomist found. As of 5pm IST on August 13, the price of Bitcoin in India was Rs. 35.3 lakhs, and the price of Ethereum was Rs. 2.47 lakhs.
These cryptocurrencies' electricity waste and carbon footprint do not create a nice image, either. While Bitcoin generates e-waste similar to Luxembourg's annual output, its carbon footprint is comparable to Greece, according to another Digiconomist research. Meanwhile, Ethereum is claimed to have a carbon footprint similar to Myanmar's annual values.
What has changed?
However, new data from Cambridge University shows that the mining landscape has shifted dramatically in the previous six months. This was largely owing to China's cryptocurrency crackdown, which saw more than half of the world's Bitcoin miners go down in only a few days.
CNBC quoted Mike Colyer, CEO of digital currency business Foundry, as stating that this will force miners to hunt for stranded renewable power. “That will always be the cheapest option. Overall, this will represent a significant reduction in Bitcoin's carbon footprint.”
While not as well-known as Bitcoin, Dogecoin, and Etherum, there are a number of alternatives that are significantly more energy-efficient. As of 5 p.m. IST on August 13, the price of Dogecoin in India was Rs. 21.
Nano is one of these cryptocurrencies, with the smallest energy footprint on the market. According to a study by inquirer.net, this is partly due to the fact that, unlike Bitcoin, it is not mined and is supposed to use low-energy techniques that leave a smaller carbon imprint and enable lower transaction fees.
Similarly, Hedera Hashgraph is a no-mining bitcoin network that has a cheaper transaction price and a smaller carbon impact. It's also highly popular, with the network claiming to have handled 1.5 million transactions per day on average in September 2020, nearly double that of the Ethereum network.
Cardano (ADA), another cryptocurrency, also follows an environmentally friendly model. For each transaction, it only utilises one miner, which is chosen at random. Coincidentally, it was co-created by Ethereum's co-founder. As of 5pm IST on August 13, the Cardano price in India was Rs. 160.
There are several options available, depending on their preferences, investors can opt for sustainable cryptocurrencies.