The issue of proof of work cryptocurrencies being energy-intensive and environmentally unsustainable continues to haunt cryptocurrencies. A new report by the Imperial College Business School now says that ignoring the environmental impacts arising from the use of cryptocurrencies would be a grave mistake for the world.
This is because cryptocurrencies are now becoming a popular trend globally, with 18,000 cryptocurrency projects launched so far, according to this report. Although the authors agree that some positives arise from using cryptocurrencies, they stress that adopting climate-friendly methods would make them play an even more significant global economic role.
“While cryptocurrencies have clear financial benefits mainly due to their decentralized nature, continued investment in ‘brown’ proof of work cryptocurrencies is likely to increase the probability of a global climate crisis. Given that the Paris Agreement’s goal, signed by more than 190 members of UNFCCC is to keep the mean global temperature below 2 degrees Celcius above pre-industrial levels, ignoring the growing evidence of crypto’s negative externalities would be a “grave mistake.”
“The question becomes a dubious trade-off: are we more scared of the predictable consequences of a financial crisis or the unpredictable ones of a climate crisis?”
The report solidifies its claim by stating that only 278 out of 18,000 cryptocurrencies are considered green since they are the ones that do not utilize the proof of work algorithm.
Proof of work requires computers to compete in mathematically solving cryptographic puzzles when determining who successfully mines the next block of transactions. The mining software and computer compute new inputs and values arising from new transactions and match them against pre-set conditions of the blockchain in question to successfully verify that all incoming batched transactions meet required conditions and that they are secure.
The verification is to be done within a pre-set time. So for a huge amount of computing work to be completed successfully and in a very competitive mining environment, a mining machine with a high hashrate is required. These machines utilize a tremendous amount of energy to mine.
It has been claimed that a single transaction consumes around 1,449 kWh, or the equivalent of 50 days of power spent by the average US household. That is because thousands of machines compete every minute to mine the next block, yet all of them are important for decentralising the network. Those energy consumption values are highly debatable, though.
The report calls out both Ethereum and Bitcoin cryptocurrencies for consuming more energy than gold and other minerals when they are being mined. The proof of stake algorithm is at the centre of the suggestion as an alternative to the proof of work.
Imperial College Business School’s report urges regulators to reign in on the question of energy intensiveness and that they should “force miners to disclose the climate-related impacts of their activities” and advertise proof of stake to foster awareness.
“This will illustrate to investors just how much pollution is generated by purchasing crypto while avoiding clumsy laws that seek to ban proof of work cryptocurrencies entirely.”