expressed opinion entrepreneur Contributors are their own.
You are reading Entrepreneur India, the international franchise of Entrepreneur Media.
Cryptocurrencies such as Bitcoin and Ethereum have come a long way since their launch a decade ago. From being hailed as the currency of the internet, they have acquired the status of volatile digital assets. In the early years, mining bitcoins only required a laptop, but now this is no longer a viable option, as the amount of electricity required to generate bitcoins increases exponentially.
Now, Bitcoin, the world’s largest cryptocurrency, consumes an estimated 133.64 terawatt-hours of electricity annually, more than is used in Argentina, which has a population of 45 million. On the other hand, its biggest competitor, Ethereum, consumes about 78.01 terawatt-hours of electricity per year, on par with Chile, according to Digiconomist’s Bitcoin and Ethereum Energy Consumption Index.
This huge thirst for electricity comes from the proof-of-work (PoW) consensus mechanism. The latter is a form of mining in which powerful computers compete with each other to process transactions, solving complex mathematical problems that require 5 billion number guesses per second. As a reward for this authentication service, miners receive new coins, providing an economic incentive to keep the computer running.
Growing concerns about the harmful effects of crypto mining on the environment have led many countries to not only ban mining, but to ban the cryptocurrency altogether. These include countries such as Algeria, Bangladesh, Egypt, Iraq, Morocco, Oman, Qatar, Tunisia and China. The latest country to ban crypto mining is Russia. But it’s not just countries that are taking notice of the detrimental impact cryptocurrencies have on the environment, businesses are also taking notice. In May 2021, electric car maker Tesla suspended the use of bitcoin to buy cars due to concerns about climate change, CEO Elon Musk informed in a tweet. Musk has long been a proponent of cryptocurrencies. After his tweet, Bitcoin fell more than 10%.
The good news, though, is that the industry woke up early and started making multiple moves in this regard. “The crypto industry is new, and within 10 years of Bitcoin, people started working on making crypto more sustainable and environmentally friendly. If we compare it to other industries that have been in the industry for a long time, they also propose A completely environmentally friendly alternative. Take the automotive industry as an example. Internal combustion (IC) engines that cause high carbon emissions have been around since the 19th century, but even today the automotive industry does not offer an environmentally friendly alternative that is scalable And available to the masses,” Sumit Gosh, CEO of Chingari App.
In 2021, a private sector initiative, Crypto Climate Accord, was launched, which aims to decarbonize the cryptocurrency sector by making it easier for blockchain projects to purchase offsets. To date, more than 200 companies, blockchains, and individuals related to crypto, DeFi, energy, and technology have signed up as supporters. Here are some other initiatives.
“Proof of Stake” System
While the energy system that underlies Bitcoin is known as “Proof of Work,” some in the industry are pushing to build new cryptocurrencies on top of a different system called “Proof of Stake.” Ethereum, the second largest cryptocurrency, is transitioning from a proof-of-work (PoW) model to a proof-of-stake (PoS) system, creating Ethereum 2.0.
Also read: Will Ethereum Merger Win?
Under the “Proof of Stake” mechanism, anyone who owns any amount of cryptocurrencies can use their tokens as collateral for the development of the blockchain. In return, users are rewarded with a fixed percentage of their staked assets when new blocks are added to the blockchain. This process is known as “staking” of cryptoassets. Compared to Proof of Work, Proof of Stake has negligible energy consumption. It uses only 0.01% of the energy consumed in the mining process. Proof-of-stake algorithms can also operate on laptops, while proof-of-work protocols require specialized computing equipment.
Then there are hybrid consensus models like Solana, which integrate proof-of-history and proof-of-stake, allowing the network to process up to 50,000 transactions per second (tps), while validating a single Bitcoin transaction takes minutes. Also, the average cost per transaction on Solana is $0.00025, which means it has huge potential for scaling.
Other cryptocurrency projects like Solarcoin, Power Ledger have started to use energy-efficient consensus algorithms such as Proof of History (Solana), Proof of Elapsed Time, Proof of Burn, and Proof of Capacity.
Mining through renewable energy
As we all know, an unlimited amount of Bitcoin can be mined by the way the digital currency is structured. As miners rapidly approach the cap, the energy requirements to mine each coin will only increase. As a result, many companies have started to move towards renewable energy sources such as hydropower, wind and solar. These include London-based Argo, Canadian company Hive Blockchain, and US-based companies such as Bit Digital and BlockFusion. Then there’s Houston-based tech company Lancium, which raised $150 million to build bitcoin mining farms in Texas that will run on renewable energy.
Jack Dorsey, co-founder and former CEO of Twitter, also took note of the growing problems posed by crypto mining. On June 5 last year, Dorsey announced a $5 million investment in his U.S. financial services firm to mine bitcoin using renewable energy. That same week, El Salvadoran President Nayib Bukele directed state-owned geothermal companies to mine bitcoin using 100% clean, renewable, and zero-emission geothermal energy. Recently, Uzbekistan legalized cryptocurrency mining by employer solar power. Additionally, it exempts all crypto businesses from domestic and foreign companies from income tax.
So, what percentage of mining comes from clean energy? That figure was 59.5 percent, according to the Bitcoin Mining Council, a voluntary global forum for bitcoin mining companies founded by software firm MicroStrategy CEO Michael Saylor.However, the conclusions of a new research paper on the power structure and carbon footprint of the Bitcoin network (titled Revisiting Bitcoin’s carbon footprint)published in the Elsevier journal Joule on 25 February 2022, finds that the share of renewable energy powering the network drops to 25.1% From 41.6% in 2020 to August 2021.
While renewable energy sources such as wind and solar can help reduce mining costs, they are not without limitations because they are intermittent sources of energy. Bitcoin miners have constant energy needs. In the case of wind energy, electricity production fluctuates with the weather. Oversupply can lead to grid congestion and even blackouts. Other renewable energy sources such as solar also pose problems because they cannot generate consistent and sufficient power for all-day trading without disrupting shutdowns. Once a Bitcoin ASIC miner is turned on, it will not be turned off until it malfunctions or cannot profitably mine Bitcoin. Because of this, Bitcoin miners increase the baseload demand of the grid.
new encryption chip
In April, Intel, one of the world’s largest chipmakers, announced a new chipset, Blockscale ASICs (application-specific integrated circuits), to improve the efficiency of crypto mining done through proof-of-work mechanisms. It promises Bitcoin miners to get the same amount of Bitcoin with less energy. However, contrary to industry norm, Intel will only provide its customers with chips, not full ASIC mining systems. Additionally, the company claims it will be able to supply these chips in bulk without affecting the supply of new CPUs or GPUs. Companies such as Argo Blockchain, Hive and Block Inc have signed up to buy the chip.
America’s New Mining Center
After China banned cryptocurrencies in September 2021, the Bitcoin mining landscape changed significantly. The United States has quickly become the global leader in Bitcoin mining and the number one country in terms of computing power. This is due to a number of reasons, such as the presence of renewable energy, low energy prices, and policies that support cryptocurrencies. Texas ticks all the boxes and has a lot to offer miners. The state has some of the cheapest energy on the planet — a major incentive for miners competing in low-margin industries, where their only variable cost is often energy. The state is also home to crypto progressive and business-friendly politicians. West Texas is America’s mecca for renewable energy.
India still lags behind
Although India is rich in natural resources such as solar energy (it is the fourth largest producer of solar energy in the world and more than a third of its total energy capacity comes from renewable sources), it still lags behind solar energy. Crypto mining.
To date, the Indian government and central bank have had a love-hate relationship with cryptocurrencies. In the past, they’ve publicly criticized the asset class — even temporarily preventing banks from facilitating such transactions — and they’ve hinted at launching their own digital currency. In 2017, it banned the import of ASCI machines designed for crypto mining, forcing Bengaluru-based blockchain technology firm AB Nexus to stop mining bitcoin and ethereum.
States like Rajasthan, Karnataka, Telangana, Tamil Nadu and Andhra Pradesh are among the top five in terms of solar power generation and are ideal candidates for cryptocurrency mining. But India is wasting that potential.
Raj Kapoor, founder of the Indian Blockchain Alliance, said: “Concerns about high energy consumption in the mining industry can be addressed by leveraging the abundance of natural resources. But India has missed the bus and lost huge revenue-generating opportunities due to unregulated mining. (When a person mines cryptocurrency, he gets a reward that is considered income and taxed. Thousands of transactions take place all over the world. If a small part of that mining happens in India, the income goes into the Not that it will only be part of our GDP and taxation, but it will also encourage employment. So, to some extent, the whole ecosystem will be affected).