Cryptocurrencies have exploded in popularity over the years after the rise of Bitcoin, with thousands of different currencies deployed, all vying to take over the market. However, not all cryptocurrencies are the same. Indeed, there are differences in name, liquidity, structure, and so forth, but in this article, we will examine the environmental impacts of cryptocurrencies, and more specifically, the ecological implications of the Proof-of-Work consensus.

Now, how big is the environmental impact of cryptocurrencies? The environmental impact hinges on the energy they require for mining and various other aspects. For example, the Bitcoin network alone uses as much energy as the entire country of Argentina. Furthermore, 65% of miners for Bitcoin are located in China, a country that derives much of its energy from fossil fuels. This creates a problem as the usage of fossil fuels contributes to an entity’s net release of ozone-depleting substances. Thus, it’s evident that Bitcoin creates quite a predicament in regard to ecological stability. In fact, CNBC reported that the Bitcoin Network produced 35.95 million tons of CO2, which is greater than the amount produced by the country of Sweden. However, there is a disputed number that 74.1% of the energy used by the Bitcoin Network is from renewable energy sources. While some claim that the environmental impacts of cryptocurrencies like Bitcoin are worth the bright future they may engender, the question at hand is whether or not the same change can be created while also mitigating the damage done to the planet.

Next, it is essential to note the origins of the environmental damage caused by cryptocurrencies. The first lies in the immense processing power required to mine them. For example, now that 18.5 million bitcoins have been mined, a regular old computer won’t be sufficient to mine them anymore. But what exactly is mining? Well, mining is tasking a computer to solve a complex algorithm that verifies transactions made on the network. Going back to the Bitcoin example, every time someone solves their hashing algorithm, they are duly rewarded with some bitcoin for their work. This concept is known as the Proof-of-Work consensus protocol. Consensus protocols are utilized in cryptocurrencies because they are consensus-driven entities. However, the Proof-of-Work consensus means that people all over the world are purchasing and running specialized computers to mine cryptocurrencies. Mining these currencies requires massive amounts of energy; hence, where the problem at hand lies. Because the environmental impacts originate from the consensus protocol employed by specific cryptocurrencies, this means that not all cryptocurrencies are equally harmful to the environment. Bitcoin and Dogecoin, the two most popular cryptocurrencies on the market, both employ Proof-of-Work protocols. However, looking at Cryptomeria’s own currencies, we utilize an unorthodox version of the Proof-of-Work protocol for the Lucid blockchain, which renders it drastically more environmentally friendly. Looking at Ethereum, they are currently shifting towards a Proof-of-Stake Protocol, which is also less harmful to the environment than the standard Proof-of-Work protocol. A more detailed description of some of the different protocols is below.

ResearchGate

All in all, while cryptocurrencies hold enormous potential for positive change in our world, it is important that we also examine the potential adverse effects they may duly hold. In doing so, it is evident that cryptocurrencies using the Proof-of-Work consensus protocol are often found creating a tremendous amount of damage to the ecological stability of our planet, and in doing so, they outweigh the benefits they can provide. However, as aforementioned, the benefits of cryptocurrencies can still be reached through the use of eco-friendly consensus protocols like that of the Lucid blockchain.

Sources

Guardian News and Media. (2021, February 27). Electricity needed to mine bitcoin is more than used by ‘entire countries’. The Guardian. https://www.theguardian.com/technology/2021/feb/27/bitcoin-mining-electricity-use-environmental-impact.

Browne, R. (2021, May 13). Why everyone from Elon Musk to Janet Yellen is worried about bitcoin’s energy usage. CNBC. https://www.cnbc.com/2021/05/13/why-elon-musk-is-worried-about-bitcoin-environmental-impact.html.

Reiff, N. (2021, May 19). What’s the Environmental Impact of Cryptocurrency? Investopedia. https://www.investopedia.com/tech/whats-environmental-impact-cryptocurrency.

Panarello, Alfonso & Tapas, Nachiket & Merlino, Giovanni & Longo, Francesco & Puliafito, Antonio. (2018). Blockchain and IoT Integration: A Systematic Survey. Sensors. 18. 2575. 10.3390/s18082575.