Monday, June 24, 2024

Eco-Friendly Cryptocurrencies And Their Hidden Risks In Greener Future

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As mining operations consume vast amounts of electricity, alternatives like green cryptocurrencies are emerging to offer a more sustainable path. 

Industry forecasts predict the global cryptocurrency market will surge to $4.94 billion by 2030. However, mining digital currencies like Bitcoin requires immense computational power, causing a significant drain on energy resources. Miners use sophisticated hardware to solve complex mathematical puzzles, securing transactions and minting new coins through a process called “proof of work” (PoW). This method is extremely energy-intensive.

Miners compete to solve these puzzles, akin to finding the right combination to unlock a giant lock. The more computing power available, the faster one can try different combinations. However, this computational power demands substantial energy, similar to how a powerful car consumes more petrol. As a result, miners operate super-powered computers 24/7, consuming vast amounts of electricity. In 2021, UK police raided an industrial unit suspected of housing an indoor marijuana operation, only to find a Bitcoin mining setup illegally siphoning electricity. That same year, Bitcoin mining’s energy consumption ranked 27th globally, surpassing Pakistan. By 2022, Bitcoin’s energy usage exceeded Finland’s national power consumption.

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To address the rampant energy consumption, green cryptocurrencies have emerged. These use a less energy-intensive process known as “proof of stake” (PoS). Instead of powerful computers, PoS requires miners to hold a certain amount of cryptocurrency. This “skin in the game” approach incentivizes validators to maintain system integrity, as cheating could lead to personal losses. A pivotal moment for green cryptocurrencies was Ethereum’s migration to PoS in September 2022, through an update called “The Merge.” This shift led to a 99.9% drop in Ethereum’s energy use, reducing its consumption from that of Switzerland to a small town.

Other cryptocurrencies like Cardano and Solana are also making strides in green finance. They use significantly less energy, handle larger transaction volumes without slowing down, and claim enhanced security. Despite the benefits, the shift to green cryptocurrencies faces challenges. Some users worry PoS might be less secure than PoW, and those with more coins have a higher chance of validating transactions, potentially centralizing control. Additionally, PoS’s initial coin distribution can favor early adopters, giving them disproportionate influence over the network, which may undermine the decentralized ethos of cryptocurrencies.

Akanksha Gaur
Akanksha Gaur
Akanksha Sondhi Gaur is a journalist at EFY. She has a German patent and brings a robust blend of 7 years of industrial & academic prowess to the table. Passionate about electronics, she has penned numerous research papers showcasing her expertise and keen insight.

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