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Cryptocurrency is harmful to the environment! These are the claims of some of the most popular anti-crypto high-profile individuals out there. While cryptocurrency has reached mainstream popularity, a number of conventional investors look at the cryptocurrency as a taboo.
One of the best comments coming from traditional investors is “how can I invest in something I don’t understand” or even “I don’t invest in something that does not have any intrinsic value.” Before talking about how Ethereum 2.0 will solve the current cryptocurrency mining energy consumption crisis, let’s first clear the smoke on why Cryptocurrency does have value.
Cryptocurrency is built on blockchain technology which is basically an encrypted space in the internet that only the sender and the receiver will have access to. Due to the encryption, the asset can bypass most of the obstacles that conventional fiat transactions might have to go through.
Cryptocurrency is encrypted and decentralized which means it operates independently. The good thing about cryptocurrencies is that most of them are limited. When there is a finite amount of currencies, the intrinsic value of the currency will remain as is. Fiat currencies, on the other hand, can opt to print out more bills or currency thus depreciating their price.
The more fiat currencies are printed out, the more inflation grows. This is one of the most important differences between fiat currency and cryptocurrency. Some currencies, however, like Dogecoin, do not have a market cap which means there is an unlimited number of $DOGE that can be minted by crypto miners.
What is a cryptocurrency? While fiat currency exists in the form of coins, bills, and notes, cryptocurrency exists in the form of private and public pieces of code. The way cryptocurrencies are stored are through digital wallets while the way fiat currencies are stored are in bank accounts.
Generally, a fiat currency is a traditional and tangible medium of exchange like the USD. Cryptocurrency, on the other hand, is a digital medium of exchange. Cryptocurrency can also act like shares (BNB), representations of ideas (DOGE), and even exist on certain blockchain platforms (ADA). Basically, cryptocurrencies are certain digital assets that work as mediums of trades not regulated by any local or international government.
Is cryptocurrency mining bad for the environment?
To give a little backstory as to one of the reasons why this is an highlighted issue, Bill Gates previously spoke strongly against Bitcoin due to its mining procedures. Although this was quite expected from a traditional investor, people didn’t expect Elon Musk, sometimes known as the “Dogefather” to follow the same path.
Elon Musk took the internet by surprise when he tweeted out that Tesla will no longer be supporting Bitcoin payments due to their concerns regarding the increasing use of fossil fuels for Bitcoin mining. What was really puzzling is the line “cryptocurrency is a good idea” for a number of levels but it supposedly cannot come at what they noted as “at great cost to the environment.”
To this statement, Maverick owner Mark Cuban and one of the prominent crypto bulls in the game rebutted the statement. Cuban noted that the Mavs will still accept Bitcoin payment and said replacing Gold as a store value can actually be helpful for the environment.
Bitcoin mining, according to studies, only uses half of the energy that traditional banking systems use cumulatively. Gold mining alone is said to use twice the amount of energy of Bitcoin mining. The Galaxy Digital Research provided a better grasp of just how much energy traditional banks use in comparison to Bitcoin.
The research found that traditional banking systems use massive 263.71 TWh of energy a year while Bitcoin lags behind at just 113.89 TWh of energy a year. This massive difference shows how traditional banking is still eating the most energy in comparison to Bitcoin.
The team at Galaxy Digital Mining wrote an excellent white paper examining #bitcoin’s energy usage.
— Galaxy Digital Research (@glxyresearch) May 14, 2021
How can we fix the high energy consumption problem of mining cryptocurrency?
Although the comparison is still huge, one might still point out that Bitcoin and cryptocurrency in general still does take up massive amounts of energy. With both Elon Musk and Bill Gates warning the public about the harm Bitcoin mining might cause the environment, other important pieces of news point towards looking for a solution for the high energy consumption.
Just recently, Iran decided to ban cryptocurrency mining after the country suddenly started facing regular blackouts. Due to certain concerns like these existing, the future of cryptocurrency critically depends on whether or not it will be able to change the way it is being mined.
While different cryptocurrency miners might be trying to formulate their alternatives, Ethereum could actually be the first to act. According to Vitalik Buterin, the creator of $ETH, the coin will go through a thorough overhaul this 2021 which aims to reduce the energy consumption by a whopping 99% in order to make Ethereum 2.0 much more environment friendly in comparison to Bitcoin.
Bitcoin now aims to achieve this through switching Ethereum from its classic PoW or Proof Of Work system to a different type of system called the PoS or Proof Of Stake. This shift in the system was noted to be the most important part of how Ethereum has been growing over the past few years.
A number of cryptocurrencies were all spiking up in the last 12 months before a massive dip occurred some time mid-May. Buterin noted that he is very happy that one of the largest problems of blockchain will start to go away once the whole “Proof Of Stake” is finally completed.
PoW vs. PoS : Ethereum 2.0 new system walkthrough
The systems’ change will be to reduce the cost of buying and even running powerful computation systems. Basically Ethereum 2.0 upgrade will be broken into three different stages.
Stage 1: Beacon Chain
Stage 2: The Merge
Stage 3: Sharding
The first stage has already begun and involves staking of $ETH in order to enable a certain validator software.
The second stage will involve the migration of the system that is currently at play with the new system.
Stage three will introduce the sharding process. The sharding process will divide the database horizontally and even spread it across the whole network in order to reduce the total network load.
This process is expected to take place starting next year. Ethereum states that with the shard chains, validators will now only need to store/run data for the particular shard that they are validating and not the whole network (which is what is happening today).
How the new system will help Ethereum 2.0 decrease energy consumption costs?
Due to the specified sharding and validation, the units won’t have to be stored or run through the entire network, which is the problem being experienced today. Once the system is active, validators can go directly to the shard that they are validating which saves in computational costs.
Due to the process being simplified, the amount of energy required to work a shard will be decreased. Due to the decrease, this will then, in turn, decrease the total amount of energy needed to mine, validate, or store Ethereum 2.0.
With the introduction of the new system, Ethereum 2.0 has an advantage of becoming “greener” in comparison to its other cryptocurrency competitors. If the issue with cryptocurrency is the dirty electricity or energy that it consumes, this could be a potential fix especially for Ethereum.
If cryptocurrency mining’s effect on the environment is something that investors have a problem with, Ethereum 2.0 has a solution that drastically reduces the amount of energy that is needed in order to mint, store, and validate the coin. With Ethereum leading the way, other cryptocurrencies might follow the same path as well.