Another common criticism of cryptocurrency is its negative impact on the environment. Some critics have also used this criticism to misrepresent the entire Decentralized Finance (DeFI) space.
While it is true that we cannot ignore the negative environmental impact associated with certain aspects of cryptocurrency, especially mining power on certain cryptocurrencies, the main cause is Bitcoin and, at the moment, Ethereum.
Cryptocurrency Mining’s Environmental Impact
Although not entirely limited to Bitcoin, the reality is that any blockchain that supports digital assets based on Proof-of-Work (“POW”) protocols will require significant amounts of power. This is because POW blockchains users, called miners, in a competition using dedicated computers, called minining rigs, randomly guessing the solution to a complex mathematical problem.
The winner who solves the cryptographic puzzle first gets the right to add the next block to the blockchain and wins the most lucrative prizes and labor rewards associated with writing that block – called block prizes. A cryptographic problem is needed to prevent bad characters from taking over the network and rewriting the blockchain as the confusing solution needs to be verified by multiple users before a block can be written.
The mining process requires so much electricity and cooling metals that miners turn to moving their equipment to large farms in cold climates or where electricity is cheaper. Areas with cheap electricity often rely on fossil fuels and gas-fired power plants, which further exacerbates the damage done to the environment. As crypto mines are naturally fragmented, governments find it difficult to stop the transformation as miners will simply move to areas with weaker rules instead.
To give you a sense of proportion, the University of Cambridge estimates that the electricity used by Bitcoin miners alone will exceed 130 terawatts by 2022 – more than the rest of Sweden. The power required by Ethereum’s POW figures is estimated to be about 73.2 terawatt hours per year, which is the equivalent of a central country like Austria.
Additionally, the complexity of the rigidity increases with time, so miners need to increase the strength of their rigs. Therefore, cryptocurrency miners need to invest regularly, upgrade and restore their dedicated mining equipment.
Gone are the days when an old backup laptop could be used for mining as cryptocurrency miners purchased expensive graphics cards, CPUs, fans, and cooling systems, and motherboards to upgrade and replace their existing equipment. All of these aforementioned requirements add to the increase in e-waste. E-waste is particularly dangerous because of the toxic chemicals that leak naturally into internal metals when they are buried or disposed of improperly.
Along with the dramatic growth in the prices of digital assets, energy consumption and e-waste are expected to increase as additional crypto-based POWs are introduced.
Possible Solution – Proof of the Pole?
One of the most promising solutions to energy efficiency and e-waste problems generated by POW compliance agreements is to move away from POW-based digital assets to the Proof-of-Stake Compatibility Protocol (“POS”).
Instead of requiring powerful computers to use a lot of power to earn blockchain, Stack Proof Agreements grant randomly the right to secure the next block and receive blockchain rewards related to adding that block to the user blocking the required amount of cryptocurrency. Participants in such blockchains who enter the required amount of cryptocurrency are called miners but instead are involved and, at times, miners.
In simple terms, making a stake is almost like making a promise of goods so that you can enter a lucky competition where the winner gets the prize for writing the next book, or block, on the blockchain and earns rewards for doing so. You do not lose the assets you promise, whether you are selected or not, and the more you promise a coin, the greater your chances of being selected as the lucky winner.
With all stakeholders making the promise of cryptocurrency, it serves as a way to promote good behavior as anyone who proves malicious or wrong blocks or deliberately cooperates with bad players loses his or her stake. You may also lose part of your stake if you fail to perform your verification duties, say offline.
A quick search shows a few hundred crypto currencies using the POS protocol. The biggest & most popular of these are binance coin, Ada, sol, etc. Each comes with different requirements as the amount of crypto required to hold it, as well as the minimum number of times that crypto is closed.
However, the biggest change is expected to come in August 2022, when Ethereum will move completely from its current POW protocol to the new POS protocol. Precisely, Ethereum will integrate its old and new blockchain, called the Beacon Chain. After development, the old POW blockchain will gradually become operational, encouraging existing miners to become involved in the new blockchain.
So how does POS help to mitigate the natural impact of cryptocurrencies? Simply put, POS-based agreements will not require the use of expensive, high-powered mining equipment. You no longer need to run to solve a mathematical problem, but instead just set the required amount of cryptocurrency. Then hopefully you are selected as the lucky one to write the next block to win the block prizes.