Bitcoin’s heavy energy usage has been debated by everyone from Elon Musk to Ethereum and China to CNBC lately. What is everyone worried about and is there some truth to what they are saying?
You most likely saw Elon Musk’s tweets announcing suspending the use of bitcoin as a payment method for Tesla over environmental concerns, which is understandable since Tesla is a green company. “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,” Musk said in May. Most of Africa’s energy resources are still very carbon dependent on natural gas, coal and petroleum and the cost of these items are out of reach for many in the continent especially the amount of energy one has to commit in producing electricity to mine Bitcoin.
How Much Energy is Bitcoin Consuming Compared to Africa?
Bitcoin’s energy-intensive network ranks in the top 30 countries for worldwide energy usage. According to Digiconomist’s Bitcoin Energy Consumption Index, Bitcoin’s energy usage can power countries with populations in the tens of millions at 131.16 TWh, this is more than what the least 47 energy consuming nations in Africa consume, combined at 130.05TWh. It produces 22.9 Megatons of CO2 each year, according to a study published in 2019 by the Scientific Journal Joule, that is almost as much CO2 produced by Sao Tome and Principe, Comoros, Central African Republic, Guinea-Bissau, Djibouti, Burundi, Gambia, Seychelles, Cape Verde, Somalia, Eritrea, Eswatini, Sierra Leone, Chad, Rwanda, Liberia, Malawi, South Sudan, Niger, Lesotho, Democratic Republic of Congo, and Guinea combined, which is 23.5 Megatons. This is not going to stay like this forever though, as Bitcoin goes up in price the miner incentives are also increasing, resulting in increased energy consumption. Another problem is that much of the mining is located in China, and relies heavily on coal. China has been shutting down cryptocurrency mining operations due to concerns over energy consumption.
It is true that Bitcoin has been a big polluter, and it is only one out of thousands of ever-growing cryptocurrencies. Can our environment really tolerate all of this at this rate? The answer is no. We are already battling with climate change, as it is. The cryptocurrency revolution has to be more sustainable both for the sake of itself and our planet.
An environmentally sustainable revolution
There are only two solutions to the environmental crisis the cryptocurrency revolution is bringing. To understand these solutions, let’s first look at why this is all happening in the first place. Bitcoin and most other cryptocurrencies have been using a concept called ‘Proof Of Work’ (PoW) to verify every transaction. Proof of work is a form of cryptographic zero-knowledge proof, in which one party proves to others that a certain amount of a specific computational effort has been expended. This system allows for verifiers on the network to come to a consensus on the amount of money in a wallet and the order of transactions. The concept is an algorithm that sets the difficulty and rules for the work miners (these are the computers that solve the complex math problem to verify and create a block in the blockchain) do. The mining being the “work” itself.
But there is a fundamental flaw in this concept, that is the problem of scalability. Bitcoin only has a finite supply and as the supply dwindles it takes longer to verify a transaction and that in turn results in using more energy than ever before to create a block making this path less feasible. It is a fact that there are a multitude of mining warehouses around the world racing to solve the current task the fastest, because only the fastest computer certifies the transaction and is rewarded along the hundreds of computers racing to solve the same exact mathematical problem. This means 99% of all the energy going into one transaction is essentially wasted energy.
One solution is partial centralization. All of the trouble the proof systems go through is to be able to verify the transactions in a decentralized manner. Some argue a centralized authority to produce the coins algorithmically would reduce the energy waste. For example, some cryptos have introduced a concept called pre-mining which requires a central authority to create a set amount of blockchain-based tokens before it is launched to the public. Many object to the idea of partial centralization, in the long run, wanting to keep the blockchain technology fully decentralized.
The other solution is switching to Proof Of Stake (PoS) mining and using renewable energy. The Proof Of Stake system essentially eliminates the competitive computing process of the Proof Of Work system while still keeping everything decentralized (even more decentralized than PoW). It lets each computer in the system work on one task at a time. The Proof Of Stake system requires validators/miners to put in some amount of cryptocurrency as collateral, called ‘stake’. In return, the algorithm periodically lets one of the validators create the next block in the blockchain. This dramatically reduces the energy usage compared to the Proof Of Work system, since there is no racing to solve complex mathematical problems. This allows for more people with lesser resources for traditional mining equipment and energy resources to be part of the validating ecosystem, it also means “mining” is not concentrated in just wealthier regions, but scattered across all geographical regions.
Switching to PoS systems
Ethereum, the second biggest crypto asset, is moving to PoS consensus mechanism from PoW. By switching to the PoS consensus mechanism as Ethereum’s number 1 priority, Ethereum founder Vitalik Buterin plans to cut energy consumption by 99% which is a huge number, and a big win for sustainability. This switch will also improve their network speed and scalability.
Building a future with PoS
Kash decentralized neo-banking system, which lets you earn interest rates up to 20%, is built upon the Terra Ecosystem which runs on the Proof Of Stake consensus mechanism and consumes less energy throughout the entire year than bitcoin produces in a day. It is a revolutionary way of earning interest on your capital without having to lend your money to a centralized system like a traditional bank. Leveraging the Terra blockchain, which enables anyone to participate in the blockchain validation system and it also lets people reap the benefits of the blockchain technology without the risk of volatility through its stable coin and protocol offerings. As more and more people participate, it will improve the scalability of blockchain technology. Kash’s Checking, Savings, and Investment accounts and its debit card will operate using Terra stable coins with the main denomination being USTerra (UST); this all in one package gives the public more financial opportunities than a traditional bank without any geographical constraint. Kash lets people send money faster and cheaper seamlessly from almost anywhere on the globe. It also aims to solve the two biggest financial constraints of the world; low-interest rates in developed economies with its (up to) 20% annual interest rate and high fiat money deflation in struggling economies with its stable coins. To learn more about Kash and decentralized finance (DeFi) we’ve written an awesome explainer article, and to create your free Kash account please visit Kash.
Revolutions that are as big as this need to be thought out carefully. We can not let blockchain technology become just another system that does not care about its impact on the environment. We have a huge opportunity now to shape the system in a way we all want because all of this at the end of the day is built by the people, for the people.
