Ignoring energy-hungry cryptos could be ‘a serious mistake’
- The latest Imperial College Business School report shows that ignoring the environmental costs of crypto mining could be “a serious mistake”.
- The author suggests switching to environmentally friendly methods and adopting greener alternatives such as Proof-of-Stake.
Imperial College Business School has released a new report emphasizing the need to make cryptocurrencies less energy-intensive to protect the planet.
The report “Damage Litigation: Cryptocurrencies and Climate Change” mentions that continued investments in energy-sensitive cryptocurrencies could increase the likelihood of a global climate crisis. The report’s author Carmine Russo, a visiting researcher at the Center for Climate Finance & Investment at Imperial College Business School said that the major pollution caused by digital assets is generated through the mining process.
This applies to cryptocurrencies that use the Proof-of-Work consensus mechanism, most famously used by Bitcoin. This consensus mechanism uses a very energy-intensive algorithm that makes crypto mining environmentally unsustainable. It requires high-performance machines for miners to solve complex algorithms and add new blocks to the network.
Ignoring environmental costs will not work
Russo says that the fastest miner who can solve the algorithm receives the rewards. Others in the competition end up wasting huge amounts of energy. The higher the machine performance, the higher the energy they consume and at the same time increase the environmental costs.
In the past, several people have also opposed Bitcoin’s high energy consumption. This was also why Tesla decided to suspend Bitcoin payments and China announced a complete ban on Bitcoin mining. Over the past year, however, a large portion of Bitcoin mining has switched to using green energy.
In the report, Russo mentioned that ignoring the environmental damage of crypto mining would be “a serious mistake”. He added:
The question becomes a dubious balancing act: are we more afraid of the predictable consequences of a financial crisis or the unpredictable ones of a climate crisis?
Cryptocurrency has become a popular trend, with an ever-increasing number of users. However, the image of digital currency is far from uniformly positive. Behind the decentralized cryptocurrency system there are significant concerns, especially regarding environmental damage.
Use climate-friendly methods
In the report, the author notes that adopting a crypto-friendly method is the need of the hour. It also mentions how a Proof-of-Stake (PoS) mechanism is a greener option in terms of design. The world’s second largest crypto blockchain network Ethereum is ready for the transition to a PoS model via the Merge upgrade in September.
Unlike the PoW model, there is no complex algorithm to solve in the case of the PoS model. Thus, there is no need for powerful computers, which makes the process less energy-intensive. Unlike miners in the case of PoW, there are stakers in the case of PoS. These stakers are randomly selected by the system, so there are no competing forces like the miners.
Russo recommends that regulators should force crypto miners to disclose the climate-related impacts of their activities. “By doing this, lawmakers may be able to maximize the positive economic role that cryptocurrencies can play in the economic system, while also addressing the environmental damage caused by their creation and use,” added Russo.
