Is the crypto ecosystem evolving to a more sustainable future?August 21, 2023
Ever since 2009, when Bitcoin was introduced, cryptocurrencies have been a hot topic for debate, especially regarding their environmental implications. The focus on this aspect has never been more important than now, given the devastating effects of climate change on the planet. As scientists point out, in 2050, the impact could be so high that millions of people could be displaced from their homes. This is alarming, showing the importance of taking drastic measures to reduce the negative effects as much as possible.
By now, everyone who’s heard of crypto knows that mining Bitcoin involves high energy consumption – for only one BTC transaction, 2,264 kWh worth of electricity is used, which is a lot. And this doesn’t only apply to Bitcoin but also to all the other digital assets that are based on a PoW consensus mechanism. As investors increasingly seek companies with strong ESG principles, it becomes crucial to answer the following question: can the crypto ecosystem become greener?
Bitcoin’s financial freedom comes at an environmental cost
In the past few years, more and more investors have traded Bitcoin on the Binance exchange. The appeal of this cryptocurrency is related to its decentralized nature and the fact that it provides financial freedom, empowering people to control their wealth. But despite its potential, many have criticized Bitcoin for its significant carbon footprint.
According to a peer-reviewed study, the environmental concerns about mining Bitcoin are regulatory-based. Bitcoin miners are willing to use renewable energy sources even if they are costly. But the question is whether governments will provide the support required to achieve this goal. There’s no doubt that crypto mining has a significant impact on the planet, requiring immediate attention and the implementation of the right solutions. The good news is that the crypto sector can pave the way for a greener future by embracing sustainable practices, like using renewable energy sources, relying on energy-efficient algorithms, and promoting decentralization.
Ethereum’s Merge: a great step towards a greener crypto space
The Merge was a significant upgrade in the Ethereum ecosystem, marking a shift from the PoW consensus mechanism to PoS. The goal was to dramatically decrease its energy consumption, creating a greener environment for cryptocurrencies.
It’s been seven months since the upgrade happened, so it’s time to determine whether the Merge was successful. In the post-Merge era, Ethereum consumed around 59.26 TWh, and after its transition to PoS, its power demand drastically reduced to 224 kW, which represents a 99.991% decrease. The conclusion? Ethereum has succeeded in accomplishing its mission. In fact, if we consider things from a larger perspective, this is a monumental achievement, given the numerous crypto projects that the Ethereum blockchain powers.
Is it possible to cultivate an eco-friendly crypto ecosystem?
The environmental safety of digital currencies is questionable when considering Bitcoin independently, but if we look at the bigger picture, the crypto ecosystem doesn’t entirely lack sustainability. Besides Ethereum, other green cryptos are available, including Solana and Algorand. The latter stands out as a key player in promoting a sustainable crypto space. Considered the first blockchain-based on a pure PoS model, Algorand took action in 2021 to reduce its carbon footprint, at the same time tracking emissions by collaborating with ClimateTrade. Cardano also uses less energy by allowing users to buy units of the crypto to join the network rather than mining new coins. This makes it a great alternative for those looking for greener cryptos to invest in. And these aren’t the only green digital currencies – projects like Stellar, Nano, Avalanche and Solana also stand out for their sustainable efforts.
Both developers and crypto advocates are being proactive about making the crypto ecosystem more sustainable. For instance, some organizations have set the goal to use renewable energy for all blockchains by 2025, and they have created an audit document of 32 pages as a way to combat the environmental impact of digital assets. It’s worth noting that different factors affect a cryptocurrency’s impact on the planet. While energy use is most commonly cited, the combination of sources where power comes from should also be considered.
Other steps have been taken to reduce the carbon footprint of cryptocurrencies, such as using solar or wind farms for mining. In theory, this sounds great, but it remains to be seen whether it can be financially possible to create renewable plants as a way to power cryptos. However, the developers of new crypto projects are addressing these shortfalls by relying on more energy-efficient designs. For example, Stellar utilizes crypto lumen to enable global payments, thus having a faster consensus mechanism than Pow and PoS. Such cryptos are built with sustainability in mind, lowering the environmental cost of blockchain networks. So, even if Bitcoin has dealt with harsh criticism because of its energy-intensive mining, the future of the crypto industry looks more sustainable as consensus mechanisms advance and renewable energy sources are utilized more.
Cryptocurrency’s environmental impact represents a significant turnoff for eco-conscious investors, especially during these times when ESG governance has become paramount. So, greener crypto projects aren’t only a way to preserve the planet, but they also increase investors’ confidence in the space. In fact, according to the European Central Bank, cryptocurrencies’ significant carbon footprints can impact their valuation in regions with powerful green policies. This highlights the importance of making the crypto space more sustainable, as it can play a crucial role in its mainstream adoption.
Although there are concerns regarding cryptocurrencies’ impact on the planet, it’s worth noting that the ecosystem is gradually transforming into a more sustainable one. Ethereum’s transition to PoS, as well as the development of eco-friendly cryptocurrencies, show a positive pathway. However, governments must also step in and play their part in reducing the carbon footprint to create a green crypto ecosystem.
Overall, the crypto ecosystem is evolving into a more sustainable one, which can only translate into exciting opportunities for eco-conscious investors and a lot of growth potential for the cryptocurrency space.