Green crypto mining: Investors pivot to make cryptocurrencies more sustainable

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  Quantumrun Foresight
• January 10, 2022

Insight summary

The energy-intensive nature of blockchain technology, particularly the proof-of-work mechanism used in cryptocurrencies, has sparked concerns due to its environmental impact. In response, the crypto industry has begun exploring more energy-efficient alternatives, including "altcoins" that promote sustainable mining practices and existing cryptocurrencies optimizing their processes. This shift towards greener crypto mining could lead to significant changes, including new regulations and technological advancements.

Green crypto mining context

The proof-of-work mechanism, a fundamental component of Blockchain technology and cryptocurrencies, has demonstrated significant energy consumption. In 2021, it was reported that the energy used by this technology was equivalent to the total electricity consumption of Argentina. This methodology is integral to the operation of cryptocurrencies by encouraging crypto miners, the individuals who validate Blockchain transactions, to continuously solve complex mathematical problems. The faster they solve these problems, the more they are rewarded.

However, this system has a considerable downside. To solve these mathematical problems swiftly, miners need to invest in high-performance computers equipped with specialized chips. These chips are designed to process large volumes of data and transactions. The need for such powerful computing resources is a direct result of the proof-of-work mechanism's design, which requires a substantial amount of processing power to function effectively.

The high-energy consumption of this technology is further worsened by the practices of some miners. In an attempt to increase their efficiency and chances of earning rewards, many miners have taken to forming groups. These groups, often comprising hundreds of individuals, pool their resources and skills to solve the mathematical problems more quickly. However, the combined computing power of these groups far exceeds that of individual miners, leading to a proportional increase in energy use.

Disruptive impact

In response to the high energy consumption associated with Bitcoin mining, some companies have started to reassess their involvement with this cryptocurrency. A notable example was in May 2021, when Tesla CEO Elon Musk announced that his company would no longer accept Bitcoin as payment due to its environmental impact. This decision marked a significant shift in the corporate world's approach to cryptocurrencies and highlighted the growing concern over their environmental footprint. 

In an effort to address these environmental concerns, some cryptocurrency platforms have started to explore more energy-efficient alternatives to Bitcoin. These alternatives, known as "altcoins," are designed to offer the same functionality as Bitcoin but with a smaller environmental impact. For example, Ethereum 2.0 is transitioning from the proof-of-work method to the more efficient proof-of-stake method, which eliminates competition between miners. Similarly, Solarcoin rewards miners for using renewable energy.

Existing cryptocurrencies are also exploring ways to become more energy-efficient. For instance, Litecoin, which still uses the proof-of-work method, requires only a quarter of the time it takes to mine Bitcoin and does not require high-powered computers. Furthermore, the Bitcoin Mining Council, a group of North American Bitcoin miners, has reported that the electricity consumption of specialized mining equipment is decreasing as technology improves. 

Implications of green crypto mining

Wider implications of green crypto mining may include:

• More altcoins entering the market that reward the use of renewable energy sources or the reduced use of energy overall.
• More companies refusing to accept non-green cryptocurrencies as payments.
• The increased crackdown of illegal miners in energy-poor nations, like China.
• Cryptominers gradually investing in their own energy production facilities to produce bitcoin in an environmentally neutral way.
• New regulations to oversee this emerging industry, potentially reshaping the political landscape around renewable energy and digital currencies.
• Advancements in energy-efficient technology, leading to the creation of more sustainable hardware and software solutions.
• New roles focused on the intersection of technology and sustainability.
• Increased adoption of cryptocurrency due to enhanced sustainability.

Questions to consider

• If you’re a crypto investor or miner, do you plan to switch to more green platforms?
• Do you think that companies should penalize cryptocurrencies that don’t have sustainable footprints?