Since its launch, Bitcoin has disrupted the cashless economic model. Bitcoin, being the world’s largest cryptocurrency by market capitalization, has transformed the way we perceive digital transactions. Although it is a consistent trending topic for investors and traders, its environmental impacts remain least talked about.
Did you know that Bitcoin mining consumes energy equivalent to that consumed by whole nations such as Finland, Malaysia, or Sweden? In fact, an average Bitcoin transaction consumes over 1,700 kWh of electricity (almost twice the monthly amount consumed by an average US household)! The good news is this energy consumption can be reduced by a single change to Bitcoin’s programming. One change in Bitcoin’s coding can reduce its carbon footprint by 99%. Let us see what this switch is and how it can be beneficial.
FAQs about Impact of Bitcoin Mining on Climate Change
The blockchain networks of Bitcoin and Ethereum are built using the Proof of Work (PoW) consensus mechanism. Under this model, the miners compete with each other to solve complex mathematical problems based on cryptographic hashing algorithms. By solving these puzzles, successful miners prove that they have spent substantial time validating a block of transactions, resulting in a consensus.
On the other hand, the pending batches of network transactions are verified and added to the blockchain. Thankfully, there is a cleaner and greener option, as suggested by activists of the ‘Change the Code Not the Climate’ campaign.
The safer option is the Proof of Stake (PoS) model. Instead of solving complex puzzles, here, miners can put something at stake to earn others’ trust. When the validators (those validating transaction blocks) have something at stake, the collateral exchange becomes an ample incentive for maintaining the integrity and security of the blockchain network. In case they are ineffective in maintaining accuracy of records or (purposely) manipulating transactions, the validators can end up losing their stake!
The PoS blockchains still utilize cryptography. However, their energy consumption is less than the PoW-driven alternatives. This is because miners do not require solving complex puzzles which will, as a result, not consume much electricity.
Crypto leaders argue that the staking model has drawbacks of its own. Advocates of Bitcoin claim that PoW allows for a more decentralized and secure network. Moreover, some advocates argue that energy is a necessary factor in providing a secure and decentralized infrastructure that generates real value.
Hence, moving to PoS can favor wealthier crypto holders who can afford to stake more tokens and will provide them a higher chance of earning, in return. Therefore, several advocates are voicing to shift the debate to lobby for greener energy use, instead of demanding a switch to an untested protocol.