Whether people like it or not, blockchain technologies such as Bitcoin and Ethereum are here to stay (Blinder, 2018). These technologies have the potential to change global society for the better through, among other things, providing individuals in impoverished countries with access to a bank account and eliminating cross border transaction fees (Wintermeyer, 2018). But with every revolutionary technology, not everyone benefits, and with blockchain technologies, this is often the environment.
At the centre of the problem with blockchain is the unintended consequence of “mining”. Several cryptocurrencies use mining in order to produce more cryptocurrencies. A simplified definition of mining is the creation of new coins made possible by solving complex computational math problems (Frankenfield, 2021). However, in order to “mine crypto” at a profitable level, an insane amount of power is required (Blinder, 2018). To put this into perspective, blockchain technologies used more power than Denmark in 2020 (Blinder, 2018). With such intense use of power and blockchains environmental impact, public and governmental scrutiny rained down on the blockchain industry. But instead of looking for solutions, many simply opted for either heavily regulating the industry or a total ban of such technologies (Frankenfield, 2021). Nonetheless, blockchain technologies have flourished and solutions to their environmental impact have presented themselves.
Efficient Blockchain Systems
Bitcoin and Ethereum both use a “Proof of Work” (PoW) system to mine their coins. Although this system is secure, it is inefficient. Two energy efficient and secure solutions to PoW exist: Proof of Stake (PoS) and Delegated Proof of Stake (DPos) systems (Binance, 2018).
PoS systems require “validators” (PoS version of miners) to invest enough into the system called “staking” and in return, the validator is chosen via an algorithm which gives them permission to add blocks to the blockchain. This system does not require the computational power that a PoW system requires, and validators can be removed for misbehaving; keeping the system accurate and secure (Blinder, 2018).
DPoS systems are a more democratic and modern approach to PoS systems. With this system, voting privileges are allocated to cryptocurrency holders and each user has the opportunity to vote on which servers are allowed to create more blocks. This allows users to choose servers that are more efficient and less energy intensive if they wish. These servers also tend to process transactions much more effectively while using less resources (Binance, 2018).
With blockchain technologies becoming increasingly prevalent and environmental concerns more important, this industry must adapt to the changing needs of society and reduce its environmental impact. This short blog presented certain solutions to the environmental impact of blockchain, and instead of banning such revolutionary technologies, society and governments should motivate blockchain producers to be more environmentally conscious.
Sources:
Blinder, M., (2018) Making Cryptocurrency More Environmentally Sustainable. Available at: https://hbr.org/2018/11/making-cryptocurrency-more-environmentally-sustainable [Accessed 6 October 2021].
Binance Academy (2018) Delegated Proof of Stake Explained. Available at: https://academy.binance.com/en/articles/delegated-proof-of-stake-explained [Accessed 6 October 2021].
Frankenfield, J., (2021) Bitcoin Mining. Available at: https://www.investopedia.com/terms/b/bitcoin-mining.asp [Accessed 6 October 2021].
Wintermeyer, L., (2018} The Role of Cryptocurrencies in Future Society. Available at: https://www.forbes.com/sites/lawrencewintermeyer/2018/10/26/the-role-of-cryptocurrencies-in-future-society/ [Accessed 6 October 2021].
