What started off as a way to prevent environmental hazards, reduce the chances of fraud, and eliminate the use of banking facilities has now led to a negative impact on the environment. It has been reported that the largest cryptocurrencies— Bitcoin, Bitcoin Cash, and Ethereum require a lot of energy to function. For instance, last year Blockchain used more power than 159 individual nations, which included Uruguay, Nigeria, and Ireland. This is leading to a substantial environmental change that poses a threat to the Paris climate change accord.
A massive disappointment for enthusiasts, cryptocurrency hardly met its expectations- environmentally and financially. The recent slide is just an add-on.
Experts believe that mining is at the heart of the problem. Bitcoin does not use banks. Miners use computers to verify transactions by solving complex mathematical problems and earning the digital currency in return. The authenticated transactions are combined into blocks and added to a blockchain, which is a public record of all transactions. Initially, Bitcoins were sold for less than a penny. However, things have changed, and it now sells for a few thousand dollars. It has been reported that close to 200,000 Bitcoin transactions, involving 25,000 machines calculating maths problems for 24 hours, get involved.
Apart from the environmental concerns, cost-effectivity is also becoming an issue. The high energy costs are adjusted as transaction fees, and customers end up paying for them. Initially, the companies that use bitcoin may not see the financial ramifications immediately but can land up paying hefty sums when the value scales.
There, however, are solutions to avoid such penalties:
– Using renewable sources of energy. Solar energy is the best option. It is said that Texas alone receives more solar power than we need to replace every non-solar power plant in the world. There are a number of commercial services which require that.
– Moving from a Proof of work (PoW) to Proof of stake (PoS) is being suggested now and then. The main reason for its popularity is the fact that forgers, not miners are responsible for validating transaction on the network. The network then decides when the forger needs to validate transactions and create the next block in the blockchain.
– Removing the amount of energy lost in creating competition and allowing each machine in a PoS system to work on one problem at a time. Among all the cryptocurrencies, Ethereum is already working toward a transition to a PoS system.
A promising technology, in particular, is the Delegated Proof of Stake (DPoS) systems, which functions in a democratic manner. In this system, everyone who has cryptocurrency tokens can vote and decide which servers become block producers and manage the blockchain as a whole. However, on the downside, the system is less censorship resistant than PoW systems.