What Are Eco-Friendly Cryptocurrencies and Their Futuristic Impact?

2022-06-20, 03:20

- There have been concerns about the ecological impacts of cryptocurrencies in terms of energy consumption and the source of energy used to power their transactions.

- Most minable cryptos leave a high carbon footprint on the ecosystem due to their proof-of-work mechanism, which makes them utilize energy to the volume of a medium-sized country.

- Eco-friendly cryptocurrencies are the ones that run the infrastructure that is climate-neutral and do minor damage to the environment in terms of energy consumption and the eradication of e-waste.

- Eco-friendly cryptos also put in place a system to check their carbon footprints as their transactions grow while adopting carbon emission offset initiatives.

Keywords: eco-friendly, environment, consensus protocol, mining, proof-of-work, carbon footprint.

The announcement by Elon Musk last year that Tesla would no longer accept Bitcoin for payment contributed to the increasing itch for "eco-friendly" cryptos. Elon Musk, who cited environmental concern as the reason for the decision, also said he would not be selling Bitcoins soon. In reality, it was just a matter of time as there was already a heady brew of concerns around the carbon footprint of cryptocurrencies, especially those running on Proof of Work mechanisms such as Bitcoin and Monero. According to the Forbes Advisor, about 64% of the total market capitalization of cryptocurrencies today use Proof of Work as their consensus protocol.

In the absence of central authority, blockchains develop consensus protocols to validate a transaction and ensure participants do not game the system by spending double what they have using the same value for a transaction twice. In proof of Work, those who carry out this validation are the miners who use high computational power to solve a complex mathematical puzzle and get some cryptocurrencies as a reward. As the number of transactions grows, the puzzle becomes more complex, making miners come together and form a pool to better their odds. From mining 50 bitcoins ("genesis block") on the CPU chip of Nakamoto's personal computer, it now requires about 1,173 kilowatt-hours of electricity to mine a Bitcoin- an amount of energy that could power an American home for six weeks. The competition to solve the mathematical puzzle that earns the miner the right to process the block exacerbates energy consumption. The energy consumption becomes more worrisome knowing that most mining pools are in places such as China, where fossil fuels are still being used as the source of energy. The adverse impact on the environment will therefore be vast and high.

A Mining pool

Source: nominex.io

Cryptocurrency and the drive towards sustainability

Most cryptocurrencies are making efforts toward sustainability. The reason for this is self-evident. Bitcoin Mining Council Survey puts the Bitcoin mining electricity mix from the data collected from 50% of the global Bitcoin network for the first quarter of 2022 at 58%. Ethereum is shifting from proof of Work to Proof of Stake, reducing energy consumption by 99.5%, as the Ethereum Foundation has said. In Proof-of-Stake, mining is replaced with the staking or locking of coins which serve as collateral for the security of the network and validating transactions. Cryptocurrencies prima facie has an advantage over paper currencies because they reduce the use of paper and the felling of trees. However, the energy consumption in proof of Work and the sources of these energies upturned the logic and refracted it into a "pot-calling-the kettle-black" debate. While some solutions are being developed to decarbonize mining processes by using renewable energy, activists have argued that they will not sufficiently address the impact of the high energy consumption on the global climate goal. Hence, the better option is to adopt a cryptocurrency infrastructure that requires negligible energy consumption- a greener and truly eco-friendly cryptocurrency.

What are eco-friendly cryptocurrencies?

Eco-friendly cryptocurrencies, also known as "green" crypto, operate systems that conserve energy and have less harm to the environment. The process involving invalidation of transactions does not constitute a danger to healthy living on the planet or deplete the ecosystem. If the trends of carbon emission at the global level continue unchecked, we might need three more planets to sustain our current lifestyle. Some cryptocurrencies have tried to ride on the back of the buzz around eco-friendly projects to label their products as one, which may not necessarily be true. An eco-friendly cryptocurrency has to tick all the boxes in terms of low and negligible energy consumption, eradicating e-waste emanating from the use and demand for high power computer hardware. The significance of human behaviour and action is also a factor to consider. Cryptocurrencies thrive in an ecosystem with a solid community base. Therefore, an eco-friendly cryptocurrency takes on initiatives to build a green culture among its community members to protect the planet.

When assessing the carbon profile of a cryptocurrency, indices on energy consumption cannot be taken at face value. Low energy consumption by some cryptocurrencies may be partly because of the low transactions. Such a case implies that with more transactions resulting from broader adoption, such cryptocurrencies will leave a high carbon footprint on the ecosystem. Also, the source of energy is another crucial parameter. Those who make it a policy to use renewable energy sources for mining do minor damage and contribute to climate change mitigation compared to those whose mining process involves using energy from fossil fuels.

Some examples of popular eco-friendly cryptocurrencies include:

1. Solana: Solana is one of the cryptocurrencies that have not only built an eco-friendly infrastructure but also adopted specific climate policies. The Solana Foundation provides real-time data on the energy impact of the crypto with a commitment to ensure the ecosystem remains efficient. The energy consumption of Solana is low compared to other currencies- with 1470 active validators and about 20,000,000,000 annual transactions -the network uses an estimated 12,544,453 kWh per year, which is slightly above the 10 649 kWh per year energy consumption of an average US household. The foundation also funds refrigerant destruction using Watershed climate to maximize carbon offsets. It does this by incentivizing the proper disposal of Chlorofluorocarbons, eliminating them.

2. Near Protocol: Near is another eco-friendly cryptocurrency. In an assessment carried out for the blockchain in 2021 by the South Pole, a global climate solutions provider, it was discovered that Near generated a carbon footprint of 174 tons of CO2 per year. While it is 200,000 times less than Bitcoin, Near protocol also undertakes carbon offsetting projects funding reforestation in Colombia, Zimbabwe, and the United States.

3. Stellar: Stellar has a negligible environmental impact for some reasons. It takes only 0.222wh to process a transaction on the Stellar network. Stellar uses a Federated Byzantine Agreement System, which does not require specialized computers to validate transactions. Stellar minted total token supply when it was launched in 2015, precluding the use of energy for introducing new tokens.

4. Algorand: Algorand is built on the Pure Proof of Stake mechanism. Algorand declared its blockchain completely carbon-neutral. Following its partnership with Climate Trade, Algorand launched a carbon emission offsetting protocol which will automatically apportion a share of every transaction fee to compensate for carbon emissions.

5. Cardano: Cardano is also considered one of the sustainable cryptos which use the Proof-of-Stake mechanism. Cardano also undertakes environmentally-friendly initiatives through its partnership with Veritree, a reforestation project facilitator.

6. Nano: Nano, previously known as Raiblocks, is another crypto championing greener transactions. The validation process is based on a voting system that requires less energy than other cryptocurrencies. It takes as low as 0.111Wh energy to complete one nano transaction.

Eco-friendly Cryptocurrencies and their futuristic impacts

Eco-friendly cryptocurrencies are setting the pace in making blockchains reconsider their priorities. There is increasing user demand for projects that impact the environment positively. As the world embraces digital currencies, the futuristic impacts of eco-friendly cryptocurrencies will include the improvement of our planet and people's lives. The new wave of adopting sustainable infrastructure will contribute mainly to energy conservation. The carbon emission offset initiatives of the greener cryptos will bring a high yield in terms of positive ecological impact. Most importantly, these initiatives will heighten the awareness of having a clear line of environmental and ethical considerations from the ideation of a crypto project throughout the launch and scaling. There is power in collective efforts; with the way eco-friendly cryptos carry their community along in their quest for sustainability, the future looks green and clean for cryptocurrencies.

Author: Gate.io Observer: M. Olatunji
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* This article represents only the views of the observers and does not constitute any investment suggestions.
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