In a recent hearing, the US government expressed concern about the environmental impacts of crypto technology and the role of ethical blockchain in the equation.
The Energy and Commerce house committee’s primary concern was the rising trajectory of energy consumption due to the massive increase in demand for blockchains. Investors and businesses have rushed to specialised markets such as cryptocurrencies, decentralised finance (DeFi), and non-fungible tokens (NFTs), all built on the Ethereum blockchain. DeFi is a financial technology that enables users to conduct transactions without the intervention of a central intermediary. On the other hand, NFTs are one-of-a-kind digital assets stored to denote ownership and monetary value.
Below, we discuss the issue in greater detail and outline the efforts being made to ensure the sustainability of blockchain. Blockchains are energy intensive because the process of generating the correct nonce for each transaction requires billions of trials and errors. Additionally, computers need superfluous energy to cool their systems and avoid overheating. With millions of computers generating energy concurrently, the University of Cambridge stated that Bitcoin generates 707 kilowatts of energy per transaction and 121.36 terawatt-hours of energy yearly. This estimate exceeds Argentina’s energy use and far exceeds the combined energy consumption of Google, Apple, Facebook, and Microsoft.
The energy consumed by a single bitcoin transaction is enough to power an average home for approximately two months. And with the blockchain’s relentless ascent, these figures are projected to climb in the coming years. However, DeFi was launched in 2017, and its total sales value surpassed $97 billion. On the other hand, NFTs’ market value is expected to reach $85 billion in 2021. Bitcoin, the most popular cryptocurrency at the moment, has increased its energy use by about 62-fold in just six years.
The first step toward a sustainable future powered by blockchain technology is a complete transition to renewable energy. According to research, roughly 39% of proof-of-work crypto mining is currently utilising renewable energy. While this involves additional financial resources, the environmental benefits are unquestionably worth it.
Indeed, some start-ups have advocated for ethical blockchain and other related activities. For instance, the Hong Kong-based start-up LiquidStack aims to efficiently cool mining machines. Genesis Mining has shifted its operations in Iceland to renewable energy sources.
Additionally, businesses are shifting away from proof-of-work systems toward “proof-of-stake” systems that require less energy to answer complex challenges. According to Simon Peters, a cryptocurrency market analyst at eToro, proof-of-stake mining is entering a small quantity of bitcoin into a lottery for the chance to validate transactions. In other words, the less money you put up as collateral, the less susceptible your transactions are to fraud and other unscrupulous practices.
While no ideal answer exists, blockchain researchers are optimistic that the market’s future will eventually become more environmentally friendly. Long-term, it is predicted to enable the automation of several transactions, including physical payment systems, transportation services, and other technical advancements. One thing is sure: users and miners are becoming more conscientious and devising ways to make blockchain more ethical, sustainable, and green.
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