As cryptocurrencies gain prominence as an asset class, their energy consumption is increasingly under scrutiny. But there are options for the more environmentally-minded investor.
When Bitcoin enters a bull run, waves of criticism regarding its economic model, lack of intrinsic value, and energy consumption often follow. Of these criticisms, the issue of energy consumption is perhaps the most valid. Currently, running the Bitcoin network for a year uses about the same amount of energy as the entire country of the Netherlands.
Bitcoin’s energy consumption has never come under as much fire as over recent weeks, following Elon Musk’s screeching u-turn on the decision that Tesla would start accepting BTC as payment.
On May 12, he announced via Twitter that his firm is “concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.”
The backlash from the cryptocurrency community was swift, with many supporters pointing out that around three-quarters of Bitcoin mining takes place using renewable energy sources. Nevertheless, intentionally or not, Musk’s tweets knocked over 20% off Bitcoin’s market cap in the following week.
The debate rages on, and the sell-off appears not to be over, but there are cleaner alternatives to Bitcoin, which is dependent on the energy-gobbling Proof-of-Work (PoW) consensus algorithm. But many platforms, particularly newer ones, have eschewed PoW in favor of the more lightweight Proof-of-Stake (PoS) model.
The current version of Ethereum is based on PoW, but the long-awaited Ethereum 2.0 upgrade will see the platform shift to PoS.
PoW is so energy-intensive because the algorithm requires that miners on the network demonstrate the amount of computing power they put into mining each block. In contrast, PoS only requires that validators demonstrate the size of their stake.
Entrepreneur and Bitcoin advocate Andreas Antonopoulos has drawn attention to the fact that PoW relies heavily on extrinsic resources to validate transactions, whereas PoS uses value intrinsic to the network. Of course, both require electricity to run the mining or validating nodes, but the consumption is far lower with PoS.
The first iteration of Ethereum 2.0—the PoS Beacon chain—is already live. However, it will be another year or two before the current Ethereum mainnet “merges” with the Beacon chain, and the network moves entirely to a PoS model.
Polygon, recently rebranded from Matic Network, offers an attractive alternative to issuing tokens on Ethereum. The project was developed as a layer two scaling solution for Ethereum. Therefore, tokens issued on Polygon are fully compatible with the Ethereum Virtual Machine.
The platform operates a hybrid Plasma and Proof-of-Stake methodology. Plasma is an Ethereum scaling technology that uses off-chain computation to enable higher throughput than on the Ethereum main chain. Polygon also uses an additional PoS “checkpoint” layer to secure the network and ensure continuous sync with the Ethereum main chain.
The Polygon project has been working hard to establish its green credentials. It provides a low-cost and eco-friendly way for projects to mint NFTs using its NiftyKit App. Late last year, Polygon onboarded CreolControl, a carbon-neutral validator, to its network.
Tezos is gaining rapid traction among the NFT art community, many of whom are put off by Ethereum’s current high energy costs. The Hic et Nunc art NFT marketplace on Tezos has drawn in many creators, including AI artist Mike Tyka and climate activist Joanie Lemercier, who sought a cleaner platform to mint their digital collections.
Tezos also runs a variation of PoS, which it calls Liquid Proof of Stake. It’s often compared to a Delegated Proof of Stake model; however, it has some subtle differences.
For instance, the Tezos model doesn’t require validators to become elected; instead, it allows token holders to vote for validators if they wish. Moreover, Tezos doesn’t place any fixed upper limit on the number of validators who can participate.
Cardano, the platform originated by Ethereum co-founder Charles Hoskinson, is another contender with green credentials. IOHK, the development house behind the project, has participated in a hackathon alongside the United Nations to explore how blockchain could contribute towards the UN Sustainable Development Goals.
The platform also uses the PoS consensus. However, like others, it’s developed its own variation called Ouroboros Praos, which is designed to remain secure even against adaptive attackers. Stakers are grouped into pools, and if their control over the network reaches a critical point, rewards diminish to prevent a hostile takeover.
So far, Cardano has been a staking-only platform; however, the project is about to undergo an update that will enable smart contract functionality.
Like Cardano, Polkadot was created by an Ethereum co-founder, in this case, Gavin Wood. The project targets interoperability as its unique selling point, which could be critical for a more sustainable blockchain future and allow liquidity to flow more easily between platforms.
Ultimately, it could encourage the phasing out of less-energy efficient platforms by allowing developers to choose more sustainable options without freezing out established ecosystems of value.
Polkadot uses the Nominated PoS consensus, which is comparable to the Tezos Liquid Proof of Stake model in many regards. The project is also currently about to launch its parachain auctions, effectively opening up the mainnet to applications for the first time.
The environmental debate isn’t going away, particularly as investors take a more conscientious approach to environmental matters even in the broader markets. However, the projects providing greener alternatives now are paving the way for a more sustainable future in blockchain.
While much of the headlines are dominated by the price of Bitcoin (BTC) and constant debates over whether we’re in a bull or bear market, the Bitcoin network carries on undeterred, mining a new block every 10 minutes. Read five fascinating facts about the OG crypto here.
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