Bitcoin alternatives could provide a green solution to energy-hungry cryptocurrencies

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The bitcoin cryptocurrency now consumes more electricity per year than Argentina as a whole, according to recent estimates from the University of Cambridge. This is because the creation of a bitcoin, in a process called mining, is done by powerful computers that work night and day to decode and solve complex mathematical problems.

The energy that these computers consume is exceptionally high. British police recently raided what they believed to be a massive indoor marijuana grow operation, only to discover that the massive electricity consumption that had aroused their suspicion was in fact a bitcoin mining setup.

Thousands of similar facilities, about 70% of which are currently based in China, continue to demand more and more energy to mine bitcoin. This naturally sparked environmental concerns, with Elon Musk tweeting in May 2021 that Tesla would no longer accept bitcoin as a form of payment for its vehicles due to its poor green credentials.

But there are thousands of other forms of cryptocurrency, collectively known as altcoins, that are much greener than bitcoin and that investors are now turning to. Many of them are trying to use less environmentally damaging technology to produce each coin, which could ultimately herald a greener future for cryptocurrencies.

Altcoins

Among the thousands of altcoins on the market, ethereum, solarcoin, cardano, and litecoin have shown promising potential as greener alternatives to bitcoin. Let’s take the example of litecoin as an example of how they do it.

Litecoins are very similar to bitcoins, except that they apparently only require a quarter of the production time. Where sophisticated and powerful hardware with colossal energy demand is required to mine bitcoins, litecoins can be mined with standard computer hardware that requires much less electricity to operate.

Other alternatives, such as solarcoin, aim to encourage real-world ecological behaviors. A solarcoin is allocated for every megawatt hour generated from solar technology, rewarding those who have invested in renewable energy.

Different cryptocurrencies also use different processes to make transactions. Bitcoin uses what’s called a proof-of-work protocol to validate transactions, which requires a network of miners competing to solve math (work) problems. The winner and the person who hits a new bitcoin is usually the competitor with the most computing power.

While Proof of Work is considered relatively safe, making it difficult and expensive to attack and destabilize, it is incredibly power hungry. The way it forces bitcoin miners to compete with an ever-growing arsenal of high-tech computers means that it has inevitably come to demand more and more electrical power.

But there are alternatives to this form of mining. Ethereum, which is the second largest cryptocurrency in the world behind bitcoin, now uses a different protocol called proof of stake. This protocol was specifically designed to address environmental concerns regarding the proof of work system, and it does so by eliminating competition between minors. Without competition, there is no underage computer arms race in which to participate.

Given the growing environmental scrutiny the cryptocurrency is now facing, it is likely that any new altcoin will embrace the Ethereum system rather than bitcoins. Investors will also look at the green credentials of altcoins when deciding which cryptocurrency to convert their bitcoin into.

Bitcoin can be exchanged for any of the thousands of altcoins in the cryptocurrency market. lucadp / Shutterstock Still the future of finance?

Despite criticism of bitcoin for its shocking energy inefficiencies, the traditional financial system is far from green itself.

In the five years since the Paris Agreement on climate change, for example, it has been reported that 60 of the world’s largest banks have provided $ 3.8 trillion (2.7 trillion) to companies in planet friendly fossil fuels. A report found that 49% of financial institutions do not conduct any analysis of their portfolio’s impact on the climate.

Then there are the sectors of electricity use. Where cryptocurrencies have the potential to operate without the oversight of large financial institutions, the banking industry relies on a huge amount of infrastructure that naturally consumes a lot of electricity.

Banks themselves use many computers and servers, as well as thousands of air-conditioned offices and gas-guzzling vehicles. It’s difficult to estimate exactly how much power is needed to support all of this activity, but a recent report found that the banking system uses more than twice as much electricity as bitcoin.

So, while bitcoin rightly suffers its outrageous energy consumption, there is ultimately a need for all of our financial systems to be green and sustainable. Banks can do this by reconsidering their portfolios and striving for net zero carbon emissions. But cryptocurrencies offer a different path to greener finance, and altcoins that focus on their environmental credentials may well clean up the tech’s reputation for excessive energy consumption.

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