Since they were introduced on the financial market, cryptocurrencies have held a firm hold on the imaginations and portfolios of investors from all over the world. Some of them, such as Ethereum, come with a wide range of functionality and features apart from the standard buying, selling and trading which makes them all the more attractive for those looking to diversify their portfolios. ETH has revolutionized several areas, being a trailblazer in the worlds of decentralized finance and applications, as well as launching and popularizing the concept of non-fungible tokens.
However, the industry has also come under scrutiny from climate activists from all over the world as a result of its enormous energy consumption. And while some believe that crypto can never change its ways and become more sustainable, there are many who are convinced that digital tokens have the ability to evolve and develop past this fundamental flaw. But what would it take to achieve this goal?
The issue
New crypto coins are mined by validating transactions on the blockchain, a process that requires miners to solve complex problems. This procedure involves the use of special gadgets that use considerable amounts of computational power. The consensus mechanisms vary between proof of work and proof of stake. The former is the original one and was first implemented by Bitcoin, the first cryptocurrency that arrived on the market. Ethereum switched to a proof of stake system that sees energy usage reduction rates of as much as 99.95%
The proof of work mechanism on the other hand is far less sustainable, but since it was the first to arrive, the novelty of cryptocurrencies drew the attention away from its consumption patterns. Many cryptocurrencies and blockchains have been shown to aim towards improving their processes and becoming greener overall, but many activists believe that the efforts are not enough given the scope of global warming and climate change.
Moreover, since an ever-growing number of people are becoming involved in actions and projects aimed at reducing the effects of greenhouse gases, cryptocurrencies may see reduced engagement rates in the future unless they succeed in changing their policies and becoming more eco-friendly.
Why it matters
It might seem that the damage created by cryptocurrency mining is inconsequential, considering that the marketplace is still pretty much a niche part of the trading world, still not popular among the majority. However, this isn’t exactly true, and the data reveals worrying trends. According to the latest estimates, all crypto assets and tokens consume somewhere between 0.4% and 0.9% of the annual global electricity usage. If that doesn’t sound like a lot, you should know that it is more than the consumption of all the data centers on the planet. Crypto is a big power guzzler, and its consumption needs to decrease so that it can become compliant with sustainability policies.
In fact, research has unveiled that cryptocurrency networks can consume as much, if not more than some states like Portugal, Hungary, and Sweden. Ethereum itself, despite the switch to a more sustainable consensus mechanism, needs nearly as much energy as Romania. Other estimates show that Ethereum uses roughly 6.6 gigawatt hours of electricity per year, the rough equivalent of about 2000 UK households. And while some have highlighted that this puts ETH’s consumption level lower, since the pre-Merge numbers showed that it consumed around as much as Switzerland every year, there are also many who believe that the change is ultimately inconsequential.
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One of the reasons why it is so difficult to change the sector is because the market is entirely decentralized, so it is challenging to push for sustainability. Some miners simply do not care or will look for the cheapest electricity possible simply as a means to maintain or boost profitability. This means that there is no incentive to switch to more sustainable processes, so the blockchain is essentially stuck in a loop.
Solutions
But as is the case for all environmental issues, there are several solutions as well. The most important thing is for them to be promoted and encouraged so that they can enjoy implementation on a broader scale. Cryptocurrencies have the potential to improve accessibility for members of the general public and bring significant innovations into the world of digital economies, but their reputation for unsustainability can only work to their disadvantage. But what should be done, and what are some pragmatic solutions that could change the crypto landscape?
The crypto world is heavily tech-based, so it only makes sense that the push towards more sustainability would begin with technology as well. Many solutions can be implemented, such as the use of gadgets that consume less in order to see immediate results. This also makes the process more realistic as a whole so that sustainability is not a nebulous goal but a very real, tangible goal that can be achieved. The use of renewable energy sources can also lower carbon emissions, making for a more sustainable process overall.
Some mining companies have already begun implementing the use of green energy in their own processes, but this is something that needs to be adopted by everyone in order to see results. Naturally, using renewable energy can increase mining costs, but it is quite possible that the miners will have no choice but to make the switch as their popularity increases and they have to keep up with sustainability standards as well.
Most market researchers believe that the transition to more sustainable systems will be slow, a scenario that will put considerable strain on the environment and natural resources for longer. If miners and developers understand the importance of fostering sustainable development, things could go much faster, but it’s not sure how likely this is to happen.
Although the sector is still relatively new and offers plenty of opportunities that don’t exist in more traditional trading spaces, it has also earned something of a negative reputation as a result of its energy consumption. Luckily, there’s potential for change and improvement, but it’s important to act fast given the urgency of the climate crisis.
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — Cover Photo Credit: Sarah Dorweiler.
