Bitcoin is much in the news these days. After being dormant for a good few years, cryptocurrencies have surfaced out of the realm of the ‘believers’ into the public domain. Everyone now seems to have an opinion on cryptocurrencies and whether to have them or not.
This larger awareness is both a result and the cause of the surge in Bitcoin’s value to new heights, breaking its own records near constantly.
The fact that Non-Fungible-Tokens or NFTs are the most trending word on Twitter - not least due to the ‘gold rush moment’ of early digital artists selling their digital ‘assets’ for very large amounts of money – only further contributes in shining a spotlight on the cryptoworld and the Blockchain infrastructure it depends on.
Crypto assets need to be mined and stored on Blockchain and each transaction needs to be authenticated via mathematical computations. To solve these mathematical riddles, purpose-built, powerful and expensive computers or groups of computers are used by miners to take part in this process of verification, also called ‘proof of work’. Proof of work validates that crypto assets are allocated to the right owner, at the right value and can be used by that rightful owner only once.
This ‘proof or work’ process uses a vast amount of energy. To give an idea: Bitcoin consumes more energy than the entire 10.9 million population of Sweden in a year and it does immediately raise the question of the sustainability of any type of digital asset, it being a crypto currency or an NFT.
Until now many Bitcoin miners based their computers in China, where energy is cheap and plentiful. China, after all, is the biggest coal producer in the world and it is no surprise that China accounts for 65% of all Bitcoin mining globally.
China accounts for 65% of all Bitcoin mining globally
But China is choking on its own coal production and is making moves to reduce carbon dioxide emissions to reach carbon neutrality by 2060. The excessive energy consumption by crypto mining therefore is being scrutinised. Beijing recently announced that by April 2021 many crypto projects will have to shut down and that new projects will not be approved.
Oops. So now what. Stop mining? Too late. Bitcoin, Blockchain, Ethereum and their NFTs are here to stay. What needs to be tackled urgently, is the energy hungry mining process and its ‘proof of work’ authentication. Ethereum for example, the network on which most NFTs are stored, is busy trying to change the ‘proof of work’ to a less energy intensive ‘proof of stake’ instead.
The current ‘proof of work’ can, as mentioned, only be executed by miners using those very powerful computers to make sure the Blockchain rules are followed and to validate a new Block. In ‘proof of work’ the computational power is the defining factor to participate in the authentication of Blocks and hence those with most power will be the more successful ‘miners’.
‘Proof of stake’ is a lighter touch. Instead of relying on raw computer power, miners will be expected to have a stake’ (read real money deposits) in the system in order to be able to add Blocks. Miners, instead of investing tens of thousands of dollars in powerful computer centres, deposit money and become stakeholders in ensuring the validity of transactions. This would require much less computer power and thus reduce energy consumption in buckets.
Ethereum is the first Blockchain set-up where ‘proof of stake’ is being worked on. Given that the booming trade in NFTs is mostly recorded and validated on Ethereum, we may sigh a sigh of relief that the insane energy use of crypto assets will fade. Not everyone is sure that this will be secure enough, but at least the awareness is there that the current state of mining is too polluting.
New technologies and more readily available renewable energy will have to be explored hand in hand to get to grips with crypto guzzling.
So is Bitcoin too hot to handle? The planet for now certainly thinks so.
Further reading
https://time.com/5947911/nft-environmental-toll/
Other articles that may be of interest
Explore others in this topic or return to the index.
