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Cryptocurrencies like Bitcoin and Ethereum have come a long way since their inception a decade ago. After being hailed as the currencies of the internet, they have attained the status of volatile digital assets. In the early years, mining Bitcoin only required a laptop, but that’s not a viable option today as the amount of energy required to generate Bitcoin has grown exponentially.
At the moment, Bitcoin, the world’s largest cryptocurrency, uses an estimated 133.64 terawatt hours of electricity annually – more than Argentina, a nation of 45 million people. Its biggest competitor, Ethereum, on the other hand, uses about 78.01 terawatt-hours of electricity per year, which is comparable to Chile, according to Digiconomist’s Bitcoin and Ethereum Energy Consumption Index.
This huge power hunger comes from the Proof-of-Work (PoW) consensus mechanism. The latter is a type of mining in which powerful computers race to process transactions, solving complex math problems that require trillions of numerical guesses per second. As a reward for this authentication service, miners receive new coins that provide a financial incentive to keep the computers running.
Growing concern about the harmful effects of crypto mining on the environment has led many countries to not only ban mining, but to ban these cryptocurrencies altogether. These include countries like Algeria, Bangladesh, Egypt, Iraq, Morocco, Oman, Qatar, Tunisia and China. The latest country to ban crypto mining is Russia. But not only countries have taken notice of the harmful effects of cryptocurrencies on the environment, but also companies. In May 2021, electric car maker Tesla suspended buying vehicles with bitcoin over concerns about climate change, its CEO Elon Musk said in a tweet. Musk has long been a proponent of cryptocurrency. After his tweet Bitcoin fell more than 10%.
However, the good news is that the industry woke up early and took a number of initiatives in this regard. “The crypto industry is new and within 10 years of the existence of the bitcoin people, they started working on making crypto more sustainable and eco-friendly. If we compare them to the other industries that have been in business for quite a long time, they are yet to find fully eco-friendly alternatives. Take the auto industry for example. Internal combustion engines (internal combustion engines), which are responsible for high CO2 emissions, have been around since the 19th century, but even today the auto industry has yet to offer an environmentally friendly alternative that is scalable and accessible to the masses,” Sumit Gosh, CEO, Chingari apartment
In 2021, the Crypto Climate Accord was launched, a private sector initiative to decarbonize the cryptocurrency sector by making it easier for blockchain projects to buy offsets. So far, more than 200 companies, blockchains and individuals from the crypto, DeFi, energy and technology sectors have signed up as supporters. Here are some other initiatives.
“Proof of Stake” system
While the energy system underlying Bitcoin is known as “Proof of Work,” some in the industry are pushing to build new cryptocurrencies on a different system called “Proof of Stake.” The second largest crypto, Ethereum, is transitioning from a Proof-of-Work (PoW) model to a Proof-of-Stake (PoS) system, creating Ethereum 2.0.
Also Read: Will Ethereum Merge From Victorius?
Under the “Proof of Stake” mechanism, anyone holding any amount of cryptocurrency can deposit their tokens as collateral for the development of the blockchain. In return, the user receives a fixed percentage of the pledged assets as a reward whenever a new block is added to the blockchain. This process is known as “staking” crypto assets. The energy consumption of proof-of-stake is negligible compared to proof-of-work. It uses only 0.01 percent of the energy used in the mining process. Proof-of-stake algorithms can also be run from a laptop, while the proof-of-work protocol requires special computing equipment.
Then there are hybrid consensus models like Solana, which integrate proof-of-history and proof-of-stake, allowing the network to process up to 50,000 transactions per second (tps), while validating a single bitcoin transaction takes several minutes. Additionally, the average cost per transaction at Solana is $0.00025, meaning it has huge potential to scale.
Other cryptocurrency projects like Solarcoin, Power Ledger have already started using energy efficient consensus algorithms like Proof of History (Solana), Proof of Elapsed Time, Proof of Burn and Proof of Capacity.
Mining via renewable energy
It is well known that there is an infinite supply of Bitcoin that can be mined with the way the digital currency is structured. And as miners rapidly approach that cap, the energy required to mine each token will only increase. As a result, a number of companies have started moving towards renewable energies such as hydro, wind and solar. These include names like London-based Argo, Canadian firm Hive Blockchain, and US-based companies like Bit Digital and BlockFusion. Then there’s Houston-based tech company Lancium, which has raised $150 million to build bitcoin mines across Texas powered by renewable energy.
Twitter co-founder and former CEO Jack Dorsey also took note of this growing crypto mining problem. On June 5th last year, Dorsey announced a new $5 million investment in bitcoin mining using renewable energy for his American financial services company. That same week, El Salvador President Nayib Bukele directed state-owned geothermal companies to mine Bitcoin using 100% clean, renewable, zero-emission energy from geothermal sources. Recently, Uzbekistan legalized cryptocurrency mining by employer solar energy. In addition, all crypto operations by domestic and foreign companies have been exempted from income tax.
So what percentage of mining comes from clean energy? The figure is put at 59.5% according to the Bitcoin Mining Council, a voluntary global forum of bitcoin mining companies founded by Michael Saylor, CEO of software company MicroStrategy. The conclusion of a new research paper on the power mix and carbon footprint of the Bitcoin network (titled Bitcoin carbon footprint review)published in Elsevier journal Joule on February 25, 2022, finds that the share of renewable energy powering the grid drops to 25.1% in August 2021 from 41.6% in 2020.
While renewable energies such as wind and solar power help reduce the cost of mining, they are not without limitations as they are an intermittent source of energy. Bitcoin miners have a constant energy requirement. With wind energy, electricity production fluctuates with the weather. Oversupply can lead to grid overload and even power outages. Other renewable sources such as solar power also pose problems as they are unable to generate consistent and sufficient power for all-day trading without interruptions from shutdowns. The Bitcoin ASIC Miner, once turned on, will not be turned off until it either fails or is no longer able to mine Bitcoin at a profit. For this reason, Bitcoin miners increase the base load requirement in a network.
New crypto chip
In April this year, Intel, one of the largest chip makers in the world, announced a new chipset Blockscale ASIC (Application Specific Integrated Circuit) to improve crypto mining efficiency through Proof-of-Work mechanisms. This promises bitcoin miners to get the same amount of bitcoin for less energy. However, contrary to the industry norm, Intel will only provide its customers with the chip and not the finished ASIC mining system. Additionally, the company claims it can ship these chips in bulk without disrupting the supply of new CPUs or GPUs. Companies such as Argo Blockchain, Hive and Block Inc have signed up to buy the chip.
USA the new mining center
After China banned cryptocurrency in September 2021, the bitcoin mining map has shifted significantly. The US quickly became the world leader in bitcoin mining and the number one country in terms of hashrate. This was due to a number of reasons such as the presence of renewable energy sources, low energy prices and a pro-cryptocurrency policy. Texas ticks all the boxes and has a lot to offer miners. The state has some of the cheapest sources of energy in the world – a great incentive for miners who compete in a low-margin industry where their only variable cost is usually energy. The state is also home to crypto-progressive and pro-business politicians. West Texas is a renewable energy mecca in the United States.
India remains a laggard
Despite the fact that India is home to vast natural resources such as solar power (it’s the fourth largest solar power producer in the world, with more than a third of its total energy capacity coming from renewable sources), it’s still a crypto-mining laggard.
The Indian government and central bank have so far had a love-hate relationship with cryptocurrencies. In the past, they have openly criticized the asset class – even temporarily barring banks from facilitating such transactions – they have also hinted at launching their own digital coin. In 2017, it imposed an import ban on ASCI machines designed specifically for crypto mining, forcing Bengaluru-based blockchain technology firm AB Nexus to stop mining Bitcoin and Ethereum.
States like Rajasthan, Karnataka, Telangana, Tamil Nadu and Andhra Pradesh, which are among the top five states in terms of solar power generation, are ideal candidates for crypto mining. But India is not tapping into this potential.
Raj Kapoor, Founder of India Blockchain Alliance says: “Concerns about high energy consumption in mining can be addressed through the development of vast natural resources. But India missed the bus and is missing out on huge revenue streams by not regulating mining. (When a person mines a cryptocurrency, they receive a reward that is treated and taxed as income. Thousands and thousands of transactions take place worldwide. If a fraction of that mining takes place in India, the income comes into the country. Not It just gets part of our GDP and taxation, but it will also support jobs, so in a way the whole ecosystem will be affected.)