Data shows that the global blockchain technology market will generate $20 billion in revenue by 2024. This means the mining of cryptocurrencies is growing extensively, and the sector’s environmental credentials are now under question more than ever. The task of mining cryptocurrencies requires heavy amounts of energy. As a solution for regulating energy consumption, various initiatives have emerged with propositions and plans, such as Green blockchain for applying more energy-efficient protocols and carbon footprint offsetting and using renewable energy.
This article will explore the need for green blockchains and decentralized green Energy Production and Consumption.
Blockchain and cryptocurrencies are gaining momentum and have ventured into many exciting possibilities. But the lesser known fact is the significant environmental impact, especially its energy usage. Let’s understand the working of a blockchain first to further examine the energy impacts of the same.
Here is a breakdown of the different steps involved in the mining process of blockchain leading to energy usage.
To confirm the legitimacy of every new block added to the blockchain, a consensus mechanism requires every user on the block to verify the block. There are various consensus-reaching mechanisms, one of which is Proof-of-Work (PoW). In PoW, the users earn the right to verify blocks by doing some computational work.
People who perform computational work are called miners. Adding a new block of data to the blockchain successfully generates new cryptocurrency, in which the miners take some crypto as a reward for their work. Miners also get paid processing fees for each transaction they enable through PoW. These rewards are incentives to keep the blockchain operating.
Miners’ work in the PoW system consists of solving a numerical puzzle. The verification process is easy to check but hard to solve. Once a solution is found, they broadcast the block to the entire network. The participants can easily check for the authenticity and legitimacy of the block of data. The numerical verification system is more of a guessing game until the right solution is found. This requires huge computational powers from the computers of miners. And this is also the system that makes blockchain highly secure and immutable despite the energy usage.
More and more computers joining the mining game does not change the functionality of the blockchain, nor does it reduce energy usage. Here, an interesting concept of the law of diminishing returns fits perfectly. This means that the profit gained from an activity will proportionately decrease over time. This is relevant because once the blockchain network reaches many nodes, the security meets basic requirements, and the blockchain remains immutable. But mining remains lucrative as more and more people choose to own crypto.
The Bitcoin blockchain alone uses 204,5 TWh of electricity per year, almost the same as the power consumed in Thailand. The amount of energy used is a huge problem, and then comes the energy source.
Today, many miners are switching to renewable energy sources. Green blockchain is one of the plausible options.
Influential leads such as Elon Musk, who stopped Bitcoin payments at Tesla in awareness of its adverse environmental impacts, have taken up cryptocurrency mining’s energy consumption issues. Countries like China are pushing away cryptos to adapt to greener practices.
In response to raised concerns, many new blockchain projects are migrating towards sustainable and less energy-consuming practices and structures. One of the prominent examples of blockchain projects venturing into sustainable energy practices is Ethereum. Ethereum is transitioning from PoW to a proof-of-stake (PoS) consensus mechanism, reducing almost 99.95% of overall energy consumption.
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PoS consensus mechanism differed from PoW because it selects the validators of the blockchain based on how many native tokens they own. The more native tokens a person holds, the higher their chances are to become a validator to help add new data to the blockchain.
The chosen validators also get a portion of the newly minted tokens as an incentive for participation. This method of crypto mining requires significantly lesser hardware (no need for mining types of equipment), which also means that more people can become validators, making the blockchain highly secure.
More and more investors are making a conscious choice of picking greener blockchain and crypto projects. To boost the act, cryptos offer financial incentives to improve the carbon footprint.
Another example is the Tezos blockchain which has been known to increase its energy efficiency per transaction over the last few years. The requirement of electricity for one transaction was approx 30% or lower in 2021 than in 2020. Tezos is an energy-efficient blockchain. Thus it consumes less energy for maintenance.
Organizations such as the Crypto Climate Accord are working on converting cryptos into sustainable ones with green blockchain catalyzed by renewable energy by 2025. A 32-page audit has already been developed to tally the environmental impacts of all the current cryptocurrencies. The Bitcoin Mining Council recently reported that 32% of its network users use a 67% renewable energy mix to mine.
Several factors of blockchain and crypto counter sustainability and environmental welfare. Energy usage of blockchain validation is only one of them. When measuring the energy usage of different cryptocurrencies, it is not enough to only talk about which crypto uses the most and which does less. A more rational argument arises while discussing the combination of sources of power used for the same. To state plainly, we should look at how many mining operations use renewable sources and what percentage of the same? What is the validation system used? And what is the number of equipment required to mint new coins?
Repurposable energy from conventional power plants or the excess gas from drilling operations has been directed toward different industries for power usage. Equinor and Crusoe Energy are well-known mining operations that sell excess energy. A Houston-based IT firm Lancium announced its plans to build a $150 million renewable energy mining plant for energy purposes. Not all crypto projects can afford a renewable energy farm for green blockchain. New crypto developers are looking into a wider range of energy-efficient systems as a more feasible option.
Another factor to consider is that crypto miners increasingly use excess electricity that would otherwise go to waste. The emergence of crypto-mining farms has prevented the waste of unused renewable energy and soaked up extra capacity. It is also imperative to understand that the traditional international financial system needs more energy and an insignificant amount than the bitcoin network requires. Global banking networks like banking data centers, card network data centers, ATMs, and bank branches require more energy.
A few miners are making the switch to solar energy. Solar energy uses the sun’s radiations to create concentrated solar power (CSP), or photovoltaic power (PV), considered one of the most sustainable power sources.
One of the most trending ways to generate electricity is using wind energy. Wind energy is known for converting kinetic energy into a mechanical power source. According to the World Wind Energy Association data, the total capacity of wind turbines reached 597 Gigawatts (GW) in 2018. The wind is also driven by direct sunlight and is used to reduce greenhouse gas emissions in mines. The energy produced is harnessed to send power across the grid for several mining operations.
Water is an important resource in mining natural gas, coal, oil, and uranium. Fuel extraction from mine sites produces toxic wastewater. But reprocessing nuclear or old coal plants with more water treatment technologies helps to minimize the number of withdrawals. Depending on the multiple regions of the world, one is focussing, in general, that hydroelectric power is rapidly growing as the de facto power source for operations of crypto-mining.
Newer cryptocurrencies have incorporated commendable energy practices and adopted alternate validation methods, leading to much less energy usage. Some of them are listed below.
Cardano uses PoS for its cryptocurrency on its peer-validated blockchain. Instead of mining new coins, people buy Cardano tokens to become network validators. This structure uses less energy and allows scalability for the Cardano network to meet the rising demand.
Stellar is a blockchain that uses its native crypto, Lumen (XLM), for global payments. Its consensus mechanism relies on a set of trusted nodes. This mechanism is said to operate faster than proof-of-work or even proof-of-stake. Fiat and cryptocurrencies can be traded on the Stellar network, and cross-border transactions can be made without having to pay huge fees and enduring slower processing times.
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Nano has been around since 2015 and is yet another energy-efficient crypto. Instead of mining, Nano uses blockchain lattice. This technology creates blockchains for every user on the Nano network. Validators are representatives voted in by the chain members using Open Representative Voting (ORV). Users can transact with their own blockchains instead of using the main network. This method ends up using considerably less amount of energy.
Hedera Hashgraph is a cryptocurrency on par with major payment processors such as Visa regarding transaction volume. Instead of linearly, the transactions are processed parallelly. The company claims up to 100,000 transactions in a second, overthrowing established cryptos like Bitcoin. Hedera does it with lesser energy usage than most cryptos. The Hedera network is also used to build sustainability projects such as Power Transition energy tracking software.
Gridcoin makes use of the power from idle computers that are connected to its network. These computers are connected for scientific research purposes, such as from the Berkely Open Infrastructure for Network Computing (BOINC). Users get rewarded with a proof-of-research mechanism along with proof-of-stake. Since 2013, grid coin has been serving some projects with its power needs. One of them includes mapping the Milky Way galaxy.
Combining energy-efficient consensus mechanisms with alternative energy sources such as renewable and repurposable makes way for green blockchain. While we benefit from the immutability and high security of blockchains complimenting versatile cryptocurrencies, we must filter our choices based on sustainability. Green blockchain is highly environment-friendly and is the best option available in the present day for a conscious choice.
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