Is Green Cryptocurrency Possible?

As Bitcoin grows, so does the currency’s carbon footprint. In May 2021, it was on track to consume around 143 terawatt-hours of power per year. That’s a little more than the annual energy consumption of Norway. 

Crypto developers looking to make the technology greener are experimenting with upgrades and mechanisms to create new cryptocurrencies that are more eco-friendly.

Why Does Crypto Use So Much Energy?

The amount of energy needed to power a cryptocurrency like Bitcoin is so high because of its mechanism to generate new coins and verify transactions — proof-of-work, or POW. 

Users can generate new Bitcoins through a process called mining. Bitcoin relies on a proof-of-work blockchain, so miners generate new coins by using computing power to solve increasingly complex mathematical problems.

The miner who solves the problem first adds another block to Bitcoin’s blockchain, verifying transactions and earning themselves a payout. Dedicating more power to mining increases your chances of solving a block and making money.

The process encourages miners to invest more power into the system, however. As a result, Bitcoin has used more energy than many countries. 

It’s not just mining that costs energy, either. Each Bitcoin transaction uses around 980 kWh, enough to power the average American home for a little more than a month. By comparison, an individual Mastercard transaction uses just 0.0006 kWh.

Because Bitcoin is on track to expand rapidly over the next few years, the energy problem will likely worsen. 

Green cryptocurrency can function without using this protocol. While proof of work is the most popular approach, several alternatives to the mechanism have emerged over the past few years.

Could New Tech Make Crypto Green?

One of the most popular proof-of-work alternatives is proof-of-stake. This mechanism uses a randomly selected miner to validate new blocks rather than someone who can quickly solve a complex mathematical problem. 

Miners in the staking system must put down or “stake” crypto as collateral to mine. Staking more crypto gives you a greater chance of being selected to validate a new block and receive a coin.

The system does not require miners to compete with computation power, so the proof-of-stake mechanism consumes significantly less energy than proof-of-work. 

The team behind Ethereum, the second-most-popular cryptocurrency, plans to switch over to proof-of-stake with Ethereum 2.0, the next version of the currency. The Ethereum team claims that the switch could slash Ethereum’s energy consumption by as much as 99.95%. 

If true, this would make one of the most popular cryptocurrencies much more eco-friendly than it is currently.

There are drawbacks to the proof-of-stake approach. Some crypto experts believe these systems could trend toward centralization and be less secure. It also hasn’t been deployed at scale yet. For some, however, the tradeoffs may be worth a more sustainable future for crypto.

Other, less-popular alternatives could also help drive down crypto’s energy consumption. Chia uses a proof-of-storage approach where hard drive space is used to earn currency instead of computation power. Like proof-of-stake, this approach would use much less energy than proof-of-work. 

It also comes with some serious drawbacks. The storage drives Chia uses are constantly working, so they fail much faster. On average, an SSD used to mine Chia may only last for 40 days — by comparison, an SSD typically works for about a decade before falling with normal use.

Proof-of-storage could reduce crypto’s energy consumption, but it would create a new environmental problem — a massive amount of electronic waste.

Green Cryptocurrency Faces Major Roadblocks but Isn’t Impossible

Cryptocurrency energy consumption is a growing problem. Alternatives to proof-of-work could help significantly reduce the amount of power certain coins use. 

There are downsides to these alternatives, but major crypto developers — like the Ethereum team — plan to use them to make green cryptocurrency.