Cryptocurrencies, including the popular Bitcoin, are here to stay, but the energy-intensive nature of the blockchain processes that support them is cause for environmental concern.
How do blockchain systems work?
Proof-of-work (PoW) blockchain systems, such as Bitcoin, use significant computational power as miners solve mathematical problems in exchange for cryptocurrency tokens, according to The Block.
These processes validate transactions and open new blocks, but they consume enormous amounts of energy as miners push to stay ahead of their competitors. Bitcoin mining alone accounts for 0.5% of the world's electricity consumption.
Alternatively, the proof-of-stake (PoS) consensus mechanism, in which validators hold and stake tokens for the privilege of earning transaction fees, relies more on the machines of coin owners and draws much less computational power.
Ethereum, as detailed in the report, has made the switch to PoS in its new 2.0 upgrade, which is said to have made significant progress toward reducing its carbon footprint by around 99.95%.
Why should you care about the rise in cryptocurrency exchanges?
A United Nations study has revealed that cryptocurrencies — along with data centers where many are hosted — are impacting more than just the electricity grid, which is reason enough to be concerned, as their massive power demand can lead to blackouts and higher utility bills.
Water resources and land use are also major factors in the pollution they generate.
Some believe the expansion of cryptocurrencies is helping drive innovation, with many data centers transitioning to renewable sources to meet their voracious energy demands.
However, UN scientists reported that dirty fuels are still the primary power source for digital currencies, using Bitcoin as an example. The study, which covered the period between 2020 and 2021, found that 45% of its energy mix was coal, followed by 21% natural gas.
Globally, data centers account for 1% of electricity consumption, while large economies, such as the United States, are seeing a draw of up to 4%, according to the International Energy Agency. It should be noted, however, that those numbers include machine learning and other processes beyond just crypto.
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Definitely 👍 "Technological innovations are often associated with unintended consequences and Bitcoin is no exception," said study lead Professor Kaveh Madani, the director of the United Nations University Institute for Water, Environment and Health (UNU-INWEH).
"Our findings should not discourage the use of digital currencies. Instead, they should encourage us to invest in regulatory interventions and technological advancements that improve the efficiency of the global financial system without harming the environment."
Indeed, blockchain technology has enabled new economic models, decentralization, and greater transparency for some financial transactions.
Crypto's environmental impact, though, particularly through energy-intensive PoW systems, "remains a significant challenge" to the sector, as The Block concluded.
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