The process of creating cryptocurrency to spend or trade gobbles up a high quantity of terawatt-hours of electricity, so it has a considerable carbon footprint. Bitcoin consumes more electricity than many countries, and its energy appetite is only growing. Mining occurs all over the world, but for years, much of it has been in China. Nevertheless, China imposed a ban on mining cryptocurrency, so Bitcoin miners had no choice but to relocate to the United States. Digital assets require significant amounts of electricity, which results in greenhouse gas emissions. As more individuals buy electronic equipment, computer hardware piles up, too.
The good news is there are more sustainable systems in the works. Ethereum is one such example. By adopting proof of stake, the blockchain will reduce its energy consumption by 99.95%, and there could be some impact on the Ethereum price USD. In addition to reduced energy consumption rates, Ethereum 2.0 promises faster transactions and lower gas fees. Needless to say, there are challenges and opportunities in reiterating the Merge on other cryptocurrencies. Amid the current climate emergency and global energy crisis, there’s increasing pressure from highly influential people for cryptocurrency to lessen the burden.
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Proof Of Stake Requires Less Energy Than Proof of Work
Similar to other cryptocurrencies, Ethereum relies on a blockchain, in which a record of transactions is maintained across several computers connected within a peer-to-peer network. When it comes to blockchains and cryptocurrencies, Proof of Stake (PoS) and Proof of Work (PoW) are the most prevalent consensus mechanisms. Gone are the days when Ethereum used Proof of Work as part of its consensus mechanism. As we all know, it’s shifted to a Proof of Stake model. It’s hoped that Ethereum’s successful transition to a greener, more energy-efficient blockchain will lead to greater adoption of the technology. At present, creating a token no longer depends on the amount of computing work realized.
The use of the Proof of Stake consensus mechanism requires less energy, which translates into less carbon footprint for the entire network and the applications implemented on top of the blockchain. As the name clearly suggests, Proof of Stake relies on stake, not computing power, to find consensus across the network. Simply put, it assigns the responsibility to validate transactions across the blockchain in accordance with the percentage of tokens locked by each validator. Most of the electricity used in Proof of Stake comes from renewable sources, providing the necessary security and scalability. Besides Ethereum, other protocols that deploy the Proof of Stake consensus mechanism are Cardano, EOS, and Tezos, to name a few.
PoS’ Impact on Ethereum’s Power Consumption Is Hard to Determine
Ethereum made the transition to the Proof of Stake validation system via the Merge, completed on September 15, 2022, reducing the number of machines involved in the validation process, not to mention the energy output of transactions, which is now just 144,000 joules. It’s hard, if not impossible, to determine the effect of the Merge on Ethereum’s power consumption with precision because the exact distribution of participating devices (and their energy costs) is unknown. The network’s power demand prior to the Merge might have been higher, as Proof of Work comprises a combination of device types, so additional costs might have been incurred.
The Ethereum blockchain supports countless other coins and crypto products, of which mention can be made of NFTs. The Ethereum community has demonstrated that it’s possible to remain resilient despite concerns and resistance, so perhaps the Bitcoin community needs a push to make things happen. Proof of Work is costly in environmental terms, even if it’s driven by innovation, so efforts should be made towards decarbonization. The willingness to do so enhances the possibility of adoption and the efficiency gains the blockchain has to deliver. Many investors interested in cryptocurrency pull back because Bitcoin isn’t sustainable.
Big Eyes Could Replicate the Success of Ethereum
The world’s second-largest cryptocurrency has reduced its energy consumption by more than 99%, but it’s unlikely that Bitcoin or others will follow suit. Bitcoin and other digital assets, notably Dogecoin and Litecoin, continue to run on the energy-intensive Proof of Work architecture. In March 2022, Greenpeace launched the Change the Code Not the Climate campaign, aimed at getting Bitcoin to change its software code to use less energy. It goes without saying that the campaign met with hostility from the community, arguing that immutability is Bitcoin’s key feature. For the sake of clarification, immutability refers to the ability of the blockchain to remain a permanent, indestructible, inalterable history of transactions.
Owing to Ethereum, we know that it’s possible to make much-needed changes to the blockchain to make the software more sustainable. Ethereum completed the Merge despite resistance from several stakeholders, concerned that it would lead to the centralization of the network, which only goes to show that, with the right support and capabilities, similar success is possible. Other cryptocurrencies should concentrate on understanding the key factors that have contributed to Ethereum’s triumph to create a replicable process that can be a roadmap for others. Decentralization continues to have a price, yet it’s possible to reduce the additional energy costs.
In spite of exciting applications, not enough investment goes towards cryptocurrency due to the high-power consumption. The hash rate and consumption for commercially-available mining rigs are substantial – Bitcoin uses more energy than Belgium and Finland. Since Ethereum made the switch to the Proof of Stake consensus mechanism, its power requirements have dropped to 0.01 terawatt-hours per year. Of course, there are countless other cryptocurrencies worldwide, and none of the energy reports or calculations take into consideration these coins. This basically means that more energy could be consumed by cryptocurrency networks. The energy intensity is a feature, not a bug.
If cryptocurrency consumers are sufficiently concerned, they’ll avoid purchasing energy-intensive digital assets. At any rate, regulations would be helpful in getting the community to reconsider its stance. Ethereum’s Merge has proven that change can happen at scale (users haven’t experienced any significant changes). Through community change, it’s possible to reduce the environmental impact of cryptocurrency.