Is Crypto Bad for The Environment?
26-10-2023
Blockchain is like the engine powering digital money. Just as cars can range from being gas-guzzlers to eco-friendly, blockchain can either consume copious amounts of energy or be green. In this article, we'll explore how different types of blockchain impact our planet. Join us to delve into its effects and the future of eco-friendly digital solutions.
What is blockchain technology?
Have you ever used a ledger or diary to keep track of things? Imagine a digital version of that, which many people around the world can access and verify. That's essentially what blockchain is. It's akin to a digital notebook that records transactions, termed 'blocks'. Each block follows the one before it, forming a chain, which is why it's named a 'blockchain'. Instead of just one person being in control, anyone can access and confirm the data. This makes it transparent and secure. Each time a new entry is made, it gets verified by others before being added to the chain. The marvel of blockchain technology is that once something is added, it's irreversible, fostering trust in the system. It's the backbone of digital currencies like Bitcoin, but its applications extend beyond financial transactions. Think of it as a secure, transparent digital diary that the whole world can trust.
How Does Blockchain Technology Impact the Environment?
When we discuss the environmental impact of blockchain technology, it primarily revolves around the maintenance of this digital 'diary' and the energy it consumes. This maintenance process, known as 'mining', resembles a collective endeavor where various individuals (or in this instance, computers) collaborate to determine the next entry in the diary. Given the myriad participants, how is it decided who earns the right to append the next transaction to this digital diary? The world of blockchain has devised distinct methods, termed consensus mechanisms, to make this determination, and two of the most prevalent ones are 'Proof of Work' (PoW) and 'Proof of Stake' (PoS). Depending on the mechanism employed in the mining process, energy consumption varies.
What is Proof of Work (PoW)?
In the PoW system, the process is akin to hosting a worldwide math competition. Computers from all corners of the globe vie to solve a complex mathematical puzzle. The first computer (or cluster of computers) that deciphers the puzzle secures the right to append the next 'page' (or block) to the diary. In recognition of this achievement, they receive a reward, typically in the form of digital coins. This approach was pioneering, crafted specifically to support the Bitcoin network, which remains its most notable user.
Yet, this ceaseless contest, with countless computers running at peak performance, demands immense electricity consumption. The production of this electricity often causes pollution, despite renewables making up roughly half of the energy mix powering these miners (i.e., computers). A single Bitcoin transaction is said to release roughly 50Kg of CO2e, based on the Cleanblocks methodology.
As a result, PoW has garnered scrutiny, spurring the blockchain community to innovate and embrace more energy-efficient techniques. The 'Proof of Stake'(PoS) system stands as a prime example.
What is Proof of Stake (PoS)?
Proof of Stake (PoS) introduces a fundamentally different approach to transaction validation compared to the traditional, energy-intensive Proof of Work (PoW) method. Instead of igniting a competitive race among computers to crack a complex mathematical problem, PoS employs a system of validators. The selection of these validators to verify transactions isn't determined by their computational power but by the quantity of digital coins they're ready to 'stake' or put up as collateral. Imagine it as a digital lottery: the more coins you commit to temporarily setting aside (or 'staking'), the greater your odds of being chosen to validate a group of transactions.
This approach notably curtails the energy demands for two main reasons. Firstly, the absence of relentless competition means computers aren't persistently running at peak performance in a race against time. Only the designated validator processes the transaction, which is considerably less intricate than tackling PoW challenges. Secondly, since the emphasis shifts from computational power to the volume of coins staked, there's no drive to amass and operate energy-hungry, high-powered machinery. The outcome is a system that safeguards the blockchain's integrity in a more ecologically conscious way, positioning PoS as a preferable option for those mindful of digital currencies' environmental footprint. Some studies show that PoS consumes 99% less electricity than PoW.
Blockchain Environmental Outlook
The impact of environmental considerations is already evident in the blockchain ecosystem. Ethereum, one of the most prominent and influential blockchain platforms, completed its migration from a Proof of Work (PoW) consensus mechanism to a Proof of Stake (PoS) system on September 2022, in a transition termed the Ethereum 2.0 upgrade. While several factors influenced this significant shift, a primary motivator was energy efficiency. After the migration, Ethereumâs [ETH] annual carbon footprint reportedly plummeted by more than 99%, as indicated by a report from Ethereum.org, with each transaction now emitting only 70g of CO2e.
Despite the clear environmental benefits of PoS systems compared to PoW, recent legislation, like the Markets in Crypto-Assets (MiCA) regulation approved by the European Parliament in April 2023, stopped short of imposing a ban on crypto-assets that employ the Proof of Work consensus mechanism (PoW). As a result, cryptocurrencies like Bitcoin will continue to operate and persistently work to increase their reliance on renewable energies.
Nevertheless, in a move toward fostering a more environmentally conscious crypto ecosystem, MiCA mandates all Crypto-Asset Service Providers to disclose information about the significant adverse effects of crypto-assets on the climate and the environment.
What makes Givearn an eco-friendly investment?
Givearn operates exclusively on the Arbitrum network, which is a mechanism built on top of Ethereum to increase their transactional capacity. According to data from Cryptowisser, each Arbitrum transaction emits less than 5g of CO2e, a stark contrast to the approximate 50Kg of CO2e emitted by a Bitcoin transaction. By choosing to function on this blockchain, Givearn not only reduces its carbon footprint but also aligns its operations with the broader movement towards sustainable crypto technologies. Investing in Givearn, therefore, represents a commitment to both technological innovation and environmental responsibility.
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