Did you know that a single Bitcoin transaction takes 1,449 kWh to complete, which is equal to 45-55 days of power for the average US household? And now imagine that Bitcoin has 250-300 thousand transactions in one day. So, on a one-year scale, Bitcoin energy consumption is similar to a middle-sized European country.
Unfortunately, cryptocurrency is not the most environmentally friendly technology. Users spend megawatts of electricity monthly to produce digital coins. But green cryptocurrencies can break this vicious cycle for good. In this article, I want to show you how they can do it, what decisions we should implement today to reduce a carbon footprint, and how green crypto will change the world tomorrow.
Understanding Green Cryptocurrencies
Green cryptocurrencies can improve the financial industry, making it more environmentally friendly. They can obtain this by consuming less energy or using renewable resources like solar or wind power.
But how is it possible to consume less energy? The easiest way is to implement consensus mechanisms that differ from traditional ones. Most green cryptocurrencies use Proof-of-Stake (PoS), Proof-of-Authority (PoA), and Delegated Proof-of-Stake (DPoS). They are more efficient than a classic PoW method.
In Proof-of-Work consensus, validation is done by a network of miners who are solving complex mathematical problems. They all need to be constantly online. They also get rewards every time the validator solves the puzzle. It leads to increased electricity consumption. In PoS, validation is done by participants who offer ether as collateral without that “high school mathematician contest”. Validators are chosen randomly. They are getting rewarded only if they correctly validate the blocks.
PoA has a similar consensus mechanism, but even with fewer validators. So, fewer users need to stake their coins. It leads to even less power consumption. DPoS is similar to PoA but allows users to delegate their stake. Validators don’t need to be constantly online because they can switch their duties to other uses.
Cryptocurrencies that work on those consensus mechanisms are still secure. But they are even faster, more scalable, and cheaper to use while being environmentally friendly. The prominent green cryptocurrencies are Cardano, Algorand, Tezon, Chia, and Nano.
Environmental Concerns of Traditional Cryptocurrencies
Each cryptocurrency faces concerns from environmental activists. And green cryptocurrencies are no exception. Traditional coins like Bitcoin use the Proof-of-Work mechanism, with high energy consumption.
The University of Cambridge study from 2021 shows that the Bitcoin network consumes 125 terawatt-hours of electricity per year. And it’s more than the Netherlands or UAE consumes in the same period. Bitcoin production and stacking also produce 65 megatons of carbon dioxide emission, similar to Greece’s or Israel’s numbers.
But society can make them more environmentally friendly, almost as “green” ones. The easiest way is to use renewable energy resources in the mining and stacking processes. Solar and wind power don’t produce gas emissions, which can lower the overall crypto-related carbon footprint. Also, crypto companies should educate the public about the environmental impact of cryptocurrencies and traditional finance tools. They also should show users how to choose the most eco-friendly option for each purpose and promote sustainable crypto projects.
By taking these steps, society can reduce the environmental impact of traditional cryptocurrencies, making them relatively eco-friendly.
Benefits of Green Cryptocurrencies
Due to more sustainable consensus mechanisms, PoS networks offer enhanced scalability. Thus, green cryptocurrencies can handle the growth without the proportional increase in energy consumption.
Generally speaking, if classic PoW cryptocurrency doubles users in a year, their energy consumption should double too. But cryptocurrencies with PoS consensus may increase energy consumption only by 30-40%. Cardano uses Ouroboros PoS-based consensus mechanism, while Solana operates on the Proof of History, which is basically a more advanced PoS.
China is also quite an interesting example of an eco-friendly cryptocurrency. They implement a unique mining technique using a storage space instead of high-consuming computational power. Chia employs Proof of Space and Time (PoST) consensus allowing participants to farm coins utilizing unused hard drive space. So, mining requires much less energy, meaning users can mine crypto while doing their regular job on the same device. It drastically reduces the carbon footprint compared to the traditional PoW currencies.
It leads to a lower carbon footprint even when the validator uses non-renewable energy resources. But if validators can employ eco-friendly power resources, it becomes one of the most sustainable payment options ever. And green cryptocurrency companies try their best to do it. They openly disclose their energy consumption sources, discussing carbon emissions and showing off sustainability initiatives.
As environmental concerns become prominent, green crypto starts to gain appeal among consumers and investors who are looking for the most sustainable option. This mass adoption has a positive social impact: many projects that use PoS crypto also share their profits with charities or community development programs. The most promising green cryptocurrencies with their fanbase are next:
- Chia (XCH). Relatively stable eco-friendly digital coin. It’s still volatile as any eco option, but it has a relatively stable price within the range of $30-60 for a single coin.
- Polkadot. One of the most expensive green coins based on the Nominated Proof-of-stake (NPoS) costs approximately $5.50 for a single coin. It’s available on many services, so you can freely use them like Ethereum or Bitcoin.
- Cardano (ADA). This green cryptocurrency has even faster transactions than Ethereum. It can process up to 250 transactions per second, which make it one of the fastest coins in the market.
- Avalanche (AVAX). This cryptocurrency is fully compatible with Ethereum’s programming language (Solidity). Thus, we all may see it in Ethereum-based projects.
As for the middle of 2023, those four currencies are the most promising option on the market. You can try them to become a part of the eco-friendly crypto sub-community.
Innovations and Solutions in Green Cryptocurrency Space
Eco-friendly crypto is an innovative industry that aims to solve various environmental concerns associated with more traditional options. Layer 2 scaling solutions are aimed to increase the scalability of classic PoW-based crypto.
The most well-known solutions are Lightning Network for Bitcoin and Raiden Network for Ethereum. These solutions process transactions in bulk off-chain and then provide information about it to the main chain. It saves power that usually was spent at the validation of every transaction.
Some cryptocurrency projects allocate a portion of revenues to support eco-friendly power plants in different regions. Green cryptocurrencies explore using Renewable Energy Certificates (RECs), representing the environmental benefits of renewable energy. By incorporating those energy sources, projects show their commitment to ecology and their concerns about it.
Some green projects promote sustainable mining practices, such as application-specific integrated circuits (ASICs) with lower energy consumption. Others promote the usage of private small solar plants on mining farms.
Some projects like Algorand try to maintain a net-negative carbon impact. Their annual energy requirements for the whole network are identical to 10 average US households.
Even more, some classic cryptocurrencies try their best to become eco-friendly. Ethereum switched from PoW to PoS consensus in late 2022. It helped them utilize 99.9% less energy than it was previously. One of the main Ethereum competitors, Solana uses a unique algorithm that combines PoS and Proof-of-History (PoH) consensus. Now a single Solana transaction uses 3.290 Joules equivalent to 2-3 Google searches.
Challenges and Limitations of Green Cryptocurrencies
As in any industry, people like to stick with previously tested solutions. And poor adoption is the main challenge for most green cryptocurrencies, except Ethereum. Due to poor adoption, most eco-friendly digital coins are highly volatile. So they don’t get enough recognition as they should.
It leads to funding problems. Many green cryptocurrencies need additional funding to create a sustainable work environment. They need to hire great developers to write scalable consensus with user-friendly smart contracts. Some of them need to create a carbon-free power infrastructure. And it’s almost impossible with poor budgeting.
Green cryptocurrencies are also facing more regulatory challenges. Adhering to existing data regulations, they must obey all eco laws of the region where they are registered. At the same time, those projects aim for maximum transparency of resource usage with users, which also takes a big chunk of resources.
Thus, many eco-friendly cryptocurrencies today have limited functionality. But the more people adopt new digital coins, the bigger budget this sub-industry will have. And it eventually will lead to both market expansion and increased productivity.
The Future of Green Cryptocurrencies
The future of green cryptocurrencies looks promising. More and more people are looking for eco-friendly solutions for daily life. So PoS coins will become more common, which can solve most challenges I’ve mentioned above.
Those coins will get more attention, so we will eventually see eco-friendly stablecoins. People will start to feel safe enough to use them in daily life. Ethereum experience shows that people like to use eco-friendly solutions but they need an infrastructure that allows them to create NFT, and crypto games and easily exchange those assets for fiat.
Primarily we’ll see how Ethereum adjusts the concept of green cryptocurrencies in the mind of general users, making them a part of daily life. We already see it now, and this trend will only increase. We also witness the rise of user- and eco-friendly cryptos such as Solana or PolkaDot. They are already accessible on many platforms and wallets, including DeFiway.
A high adoption level shows governments that they should recognize the importance of sustainable practices in the crypto industry. So, we will see more regulations for green coins, which will lead to increased adoption among regular users.
All those events will eventually lead to a boost of investor interest and collaboration with established projects. It will make green cryptocurrencies even more eco and user-friendly options.
Green cryptocurrencies are an eco-friendly alternative to traditional digital coins. As I said before, on a one-year scale, Bitcoin's yearly consumption is similar to that of a middle-sized European country. It happens because traditional cryptocurrencies use a non-energy-efficient PoW consensus method.
But coins based on PoS consensus are far more efficient. For instance, Aglorand’s whole network energy consumption requirements are similar to 10 average US households. Solana’s yearly power consumption is similar to 1000-1100 average US households. However, due to fear of the unknown, many people are still afraid to try a new cryptocurrency type. That’s why Ethereum took the risk in the middle of 2022 and switched from PoW to PoS consensus.
That way developers wanted to show that you can use eco-friendly alternatives and do whatever you want with them: stack coins in your wallet, borrow or lend them, create your own NFT, or even make blockchain games.
And that risk paid off. People have started to see eco-friendly alternatives as full-fledged options. So, the future of this technology looks promising. You can already buy, sell and exchange them with ease.
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