Why Does Crypto Use So Much Energy?

Cryptocurrencies, such as Bitcoin, have gained tremendous popularity in recent years. However, one widely debated concern is their significant energy consumption. The reason behind this high energy usage lies in the fundamental technology that powers these digital currencies – blockchain.

Blockchain serves as a decentralized ledger where all transactions are recorded and validated by network participants called miners. These miners compete to solve complex mathematical puzzles, often referred to as proof-of-work.

In order to solve these puzzles, miners need substantial computational power, which usually requires specialized mining hardware known as ASICs (Application-Specific Integrated Circuits). These machines consume large amounts of electricity while constantly performing complex calculations.

Energy Consumption – Bitcoin

ExpressVPN shared in their blog post that Bitcoin’s environmental impact has drawn criticism, and the amount of power needed to mine Bitcoin could sustain the power needs of some smaller countries. Many other cryptocurrencies also have a comparable carbon footprint, but Bitcoin bears the brunt of blame due to its popularity and the inefficiency of its consensus mechanism. 

In the early days of Bitcoin, the energy consumption associated with the cryptocurrency was relatively low compared to that of nation-states. However, as more individuals enter the market and compete to solve complex mathematical puzzles fundamental to Bitcoin’s technology, the energy requirements have skyrocketed. This trend shows no signs of slowing down, and in fact, it is expected to accelerate as more people seek to invest in Bitcoin.

What Can Be Done About Bitcoin’s Energy Problem?

Bitcoin’s energy problem is a pressing issue that demands attention and solutions. As the popularity of Bitcoin continues to skyrocket, so does its ecological impact. 

Switch to Renewable Energy

Bitcoin mining powered by renewable energy has seen a significant decline in recent times due to stringent measures imposed by China. Chinese government aimed to eliminate Bitcoin mining activities within its borders, thereby prompting miners to operate in more clandestine ways. 

In recent years, numerous startups have emerged with the primary goal of mitigating Bitcoin’s significant carbon footprint. These innovative companies are actively pursuing various solutions to make the mining process more environmentally friendly. 

One such startup is LiquidStack, which is focusing on improving the energy efficiency of mining rigs by enhancing their cooling systems. By efficiently lowering the temperature of these machines, LiquidStack aims to reduce the carbon emissions associated with their operation.

Embrace Pre-Mining

Pre-mining is a unique concept in the world of cryptocurrencies, employed by some digital currencies as a means to mitigate the wastefulness associated with traditional mining processes. Unlike other cryptocurrencies, pre-mined coins are not produced through computational algorithms but rather created and carefully released into the market at the discretion of a central authority. 

By pre-creating a fixed amount of coins, cryptocurrency developers can strategically distribute them based on external factors such as market demand or specific events impacting their business ecosystem. 

Introduce Carbon Credits or Fees

Carbon credits serve as official approval from the government granted to companies, permitting them to release a specific quantity of carbon emissions into the environment. These credits are frequently securitized, making them tradeable commodities that can be bought and sold by different businesses. By implementing this system, companies with lower emissions requirements can sell their excess credits to those exceeding their emission allotment.

This approach offers several benefits, including incentives for companies to minimize their carbon footprint. With the potential to profit from selling unused credits, businesses have a financial motivation to reduce emissions below their assigned limit.

Conclusion

In conclusion, the high energy consumption of crypto mining is a result of the complex algorithms and mathematical computations required to verify transactions and maintain the security of cryptocurrencies. While this energy usage may seem excessive, it is important to consider cryptocurrencies' benefits in terms of decentralization, security, and financial inclusivity.