Bitcoin Mining Is Terrible for the Environment. Crypto Doesn’t Have to Be.
Is it necessary to “mine” cryptocurrencies? What’s Ethereum 2.0?
Bitcoin is often heralded as cryptocurrency that can change the world; however, Bitcoin mining is not as environmentally friendly as it seems. In fact, in order to protect the digital security of Bitcoin, a huge amount of electricity needs to be consumed.
This year, cryptocurrency mining is estimated to consume around 121.36 terawatt-hours (TWh) a year. Unless the value of the currency slumps, it’s unlikely that this figure will decrease anytime soon. For comparison, the country of Argentina consumes about 121 TWh a year, the Netherlands (108.8 TWh) and the United Arab Emirates (113.20 TWh). For the full report. you can find the article here.
Blockchain explained simply
If you have heard of bitcoin, there’s a 10,000% chance you have also heard of the blockchain. Blockchain is the core protocol that helps it operate and ensures that bitcoin, and other cryptocurrency transactions, can be trusted without being verified by any centralized governing body. Decentralization itself is one of the key advantages of cryptocurrencies over traditional currencies.
So how does the blockchain protocol ensure that transactions aren’t fraudulent? Each transaction on the bitcoin network is validated by a network of “miners”. In simple terms, miners use computers to crack complex mathematical problems that verify the transactions on the network. But not everyone who verifies these transactions get rewarded. Only the first miner who successfully “cracks a puzzle” to verify a “block” or group of transactions gets rewarded. Bitcoin mining is basically a competition to process transactions on the network and you earn bitcoins by contributing computing power to this competition. The more computing power you have, the better your chances to succeed in winning this race.
So the whole point of mining is to process blocks and add them to the blockchain so that you get rewarded in bitcoin for doing so. If someone is mining bitcoin, they are essentially verifying bitcoin transactions using powerful hardware for a fee.
If you’re nerdy enough to sit down and watch a 20 minute breakdown of how bitcoin works down to the fundamentals, watch the following video. It’s long but very well explained.
Why is Bitcoin mining bad for the environment?
These aforementioned “puzzles” can’t simply be solved by any smart person. They require special computer hardware and a lot of electricity to solve these complex mathematical problems. With many miners competing to solve the same puzzles at once to receive the block reward, a lot of energy is wasted. While processing blocks and earning bitcoins is in itself considered a waste of energy since it isn’t very efficient, another problem lies with the hardware. Currently, lots of miners use Application Specific Integrated Circuits (ASIC) which are pieces of hardware specifically designed for bitcoin mining purposes which uses 10x more electricity than normal computers. These ASICs can only be used to mine bitcoin so once they become obsolete, they are useless for everything else — including other important tasks such as scientific research or video game graphics rendering.
This year, cryptocurrency mining is estimated to consume around 121.36 terawatt-hours (TWh) a year. Unless the value of the currency slumps, it’s unlikely that this figure will decrease anytime soon. For comparison, the country of Argentina consumes about 121 TWh a year, the Netherlands (108.8 TWh) and the United Arab Emirates (113.20 TWh). For the full report, you can find the article here.
As well as consuming huge amounts of electricity, Bitcoin mining is also bad for the environment as it uses specialist mining rigs that produce a lot of heat. The hardware systems are often placed in areas with cheap electricity but these areas are often in countries that have a low Human Development Index and rely on coal for electricity, so the environmental impact and cost to local populations are high.
Finally, is the concept of mining pools. These are groups of miners who combine their computing power to process blocks. The mining pool rewards are then shared among the group depending on how much work each miner has done. This mechanism incentivizes miners to join mining pools and thus increases network security, but it also means that fewer rewards are given out. So, as a result of this mechanism, miners with more powerful hardware and more electricity tend to earn most of the profit in these pools. But the major issue with these mining pools is that as they grow bigger, the blockchain network becomes less decentralized. An even greater concern arises once a mining pool’s share of computer resources exceeds 51%. This would give the operator of the pool majority control over the network and can be used to launch an attack on the blockchain. You can learn more about the 51% attack here.
What’s the solution
There are many concerns about the environmental effects of bitcoin mining. The best solution to this problem is a change in the way bitcoin transactions are verified. Currently, these transactions go through a process called proof-of-work (the name for the mining process we discussed earlier) which favors miners who spend lots of money on specialized hardware and electricity.
Instead, it would be more efficient for transactions to be verified by “proof-of-stake”. Instead of rewarding miners for being first to verify a transaction, the proof of stake protocol chooses a random “validator” on the network to verify the next transaction. To become a validator, they must offer up a “stake” of their own cryptocurrency, greater than the validation award, as collateral to prevent them from maliciously blocking or trying to game the system. This validator doesn’t have to solve any complex mathematical problems but just has to be online at the time a transaction is made. After the block is validated, the next validator gets chosen. If subsequent validators find out that previous blocks were fraudulent, it could result in the creator of that block losing the stake from that transaction. This approach incentivizes validators to be honest, as any dishonest behavior would result in them losing their investment. It would also allow the network to be run on more powerful and less expensive hardware.
Ethereum , one of the most popular cryptocurrencies, is planning to move from a proof-of-work protocol to proof of stake with Ethereum 2.0. The ultimate goal is that once the change is implemented, there will be no need for miners. Another cryptocurrency, NEO, is also developing a proof-of-stake protocol as a result of a similar concern.
The future of transaction verification lies in proof-of-stake protocols. They are less dependent on hardware and therefore more democratic and decentralized. This means they pose little to no threat to the environment as they don’t require huge amounts of electricity to operate. However, these protocols need further development before they can be used for mainstream applications like smart contracts or bitcoin transactions. Developers must be careful and ensure that these protocols cannot be exploited by dishonest validators. If successful, cryptographic currency transactions will become more efficient, cheaper and sustainable.
