In the first month of 2018, the cryptocurrency market surpassed the $700 billion mark in market size. While it had a rise in popularity in the late 2000’s, crypto has become a household name in the past one to two years.
Individuals can earn cryptocurrencies in a variety of ways. One of the first of which is simply to buy them from a brokerage that allows users to purchase a cryptocurrency of choice with a credit card, PayPal account, or other types of payment. Similarly, exchanges exist where cryptocurrencies can be exchanged for fiat currency. Both systems have a low barrier to entry, making it a popular choice among investors and general consumers.
These digital currencies aren’t just available through online means, though. Some opt for mining rigs to earn them gradually. This involves purchasing expensive computers which solve complex math equations to generate cryptocurrencies.
Though often overlooked, mining cryptocurrency has an enormous impact on the environment. Experts say that Bitcoin operations, for example, use one-to-four gigawatts for electricity, which is equivalent to the output of one-to-three nuclear reactors.
There are other claims that say Bitcoin uses the same amount of energy as the country Singapore or that it uses enough energy to power 4.5 million houses. The validity of these claims is tricky because there is so little data on how much energy Bitcoin operations really do use. Whether true or not, the blockchain industry relies on high energy use, but there are ways to prevent further damage.
How cryptocurrency mining works
Before we elaborate on its environmental impacts, let’s first examine how mining cryptocurrencies is actually performed.
To begin mining, an individual uses a node. This is a special computer made specifically for solving hashes, which are complex mathematical equations. Software for crypto mining is freely available online and anyone with an Internet connected can download it.
But, what are these equations its solving? They are pending transactions which are grouped into blocks. The first node to solve an equation will be able to claim the cryptocurrency. If successful, it is announced to all of the other computers on the network so they can begin solving the next block. Hence the term blockchain.
The equations are put into a string of characters known as a hash. The nodes guess at random what the numbers are until its solved. The time it takes to do so is dependant on the power of the individual computer, available bandwidth, and a variety of other factors. This leads us to our next point.
Cryptocurrency mining and environmental impacts
Cryptocurrency operations use approximately one per cent of all electricity in the US. Owning just one or two nodes won’t result in many coins being mined because the hash equations can take extremely long periods to solve, with many of them never being successful. As a result, there are professional miners that operate thousands of processors, or mining farms. So, miners resolve this by investing in dozens or more computers. To keep them running properly, they also use high-speed Internet connections. Mining rigs are also kept running 24 hours per day to increase the chance of generating cryptocurrencies.
In turn, mining setups use a high amount of electricity and leave a large carbon footprint. Networks of these mining computers also take space, which means that the owners often purchase buildings to store them. These also require electricity, further adding to the environmental impact. As individuals require more and more computing power, the electricity use and carbon footprint grow exponentially.
A carbon credit system as a solution
A carbon credit is a permit that grants a business to emit a certain amount of carbon emissions. The permit can be traded in if the maximum emissions are not exceeded. This was implemented to incentivise adopting carbon-friendly energy practices.
If these carbon credits are able to be traded among blockchain companies, it also creates an economic incentive to adopt them. Not only will it reduce their carbon footprint, but it also becomes a second revenue stream. As more businesses within the blockchain industry trade them, demand will begin to increase. This growth in adoption will improve access to carbon credits and make knowledge more readily available.
The problem is, not many in the cryptocurrency world are aware that it exists. It is a $52 billion market and has many barriers to entry for business owners that wish to apply. It is also highly centralised and dominated by intermediaries like brokers. Plus, there is a lack of transparency in how carbon credits are bought and used.
To help both the blockchain industry’s carbon footprint and to make accessing carbon credits easier, a system can be made to bridge the two. The system will need to make the process of obtaining carbon credits convenient while also offering benefits to promote their use.
Governing green sector parties can be appointed as authority nodes to oversee proper trading and use of these credits. The ledger used for carbon credits will also need to be transparent to enhance traceability.
The blockchain apps or technology developed to make this system could be open source to increase its progress further, too. Developers would be able to add their own features or integrate it into their businesses more precisely.
Lowering blockchain’s carbon footprint
The blockchain industry is experiencing explosive growth, with cryptocurrency mining becoming a main area of interest. By investing in powerful computers and setups, individuals are able to mine cryptocurrency for profit. Unfortunately, it uses high levels of electricity and leaves a significant carbon footprint.
To offset this, the blockchain industry needs to normalise the use of carbon credit trading. This system will aid in lowering emissions as a result of mining and other blockchain related activities.
Green sector companies could be responsible for ensuring best practices, while a transparent ledger helps accountability. Benefits should also be made to entice businesses to use carbon credits. Lastly, allowing developers access to related apps and technology will speed up its development and normalisation.
Andy Tan, Co-founder and CEO, Carbon GridProtocol
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