Cryptocurrency mining has become a fundamental part of the crypto industry and one that has caused the most controversy, especially when it comes to Bitcoin (BTC). China enforced a ban (Sept. 24, 2021) on Bitcoin mining, which was the catalyst for numerous other countries to take on the task of maintaining the tremendous number of transactions taking place on the network. So, Bitcoin mining has negative crypto carbon emissions. But what about other blockchain networks? We’ll delve deeper into this a little later.
What is Bitcoin mining and how does it affect the environment?
The process of Bitcoin mining works by adding groups of transitions (blocks) to a shared record (blockchain). In terms of taking part in the mining process, every computer set up for mining (rig) is in competition all the time, which is known as the mining race, to win the bid to add the next block to the record.
The complications for Bitcoin mining are to do with the protocol used to process transactions, which is known as Proof-of-Work (PoW). This activity requires a very powerful rig, equipped with state-of-the-art graphics cards and other specialist mining hardware, that consumes quite a bit of electricity. What prevents many people from setting up their own rigs is the high cost of equipment and the high energy costs.
The reason someone would want to take part in Bitcoin mining relates to the fact there is roughly a 12.5 BTC reward issued to the publisher of every new block. This is a fairly attractive incentive. But, with more miners joining the competition and the added issue that the block reward halves every four years, many mining operations are turning into much bigger operations to ensure it’s a worthwhile investment.
What is Proof-of-Work?
Proof-of-Work is a decentralized consensus mechanism that is upheld by members of the network through the process of mining, which is a mathematical puzzle carried out by a computer, leading to a protected system. The network can validate transactions without any possibility of anyone tampering with the network. One of the most attractive things about cryptocurrency is the exclusion of a third party to the process of spending, transferring or trading money.
How does cryptocurrency mining work for other blockchains?
The process of mining any cryptocurrency is much the same—validating cryptocurrency transactions on a blockchain network—and miners are integral to the upkeep of the network. To understand mining other cryptocurrencies, let’s take the second-highest coin by market cap, Ethereum, which now uses a Proof-of-Stake protocol after the release of Ethereum 2.0.
In terms of mining Ethereum, there are three different approaches miners take, which are as follows:
- Pool mining: A collaborative way to mine, with various individuals in agreement that whoever wins the bid for the block, will divide the block reward evenly between the pool of people. Each pool is measured by hash power, which determines how many blocks the group can expect to win and therefore what the average payout will be.
- Solo mining: This is just mining on your own. You would need a vast amount of GPU power in order to carry out the cryptographic puzzles and create a new block. As such, this is generally for professional mining facilities.
- Cloud mining: This works by paying someone else to mine on your behalf. You pay a company to rent the necessary equipment and in return, the company gives you the rewards for mining.
There are other cryptocurrencies running their own consensus algorithms, such as; Fantom Token (FTM) using Fantom Opera, Stellar (XLM) using Stellar Consensus Protocol, and Holo Token (HOT) using Distributed Hash Table, but for the most part, the technical aspects are similar to any other PoS consensus.
What is Proof-of-Stake?
Proof-of-Work consensus mechanism works by randomly assigning a node that will mine or validate a block, in accordance with how many coins that node holds. What is a node? Simply put, a node is a computer that connects to a cryptocurrency network, facilitating the validation of transactions on the network. The more coins held in a wallet, the more mining power is granted to the node by the network. Although PoS is a lot less hardware-reliant and doesn’t have such a negative carbon footprint, it isn’t quite as secure as a PoS consensus.
How does crypto mining impact the environment?
This really depends on the cryptocurrency in question. Popular currencies like Elrond eGold (EGLD), Sandbox (SAND), and Solana (SOL) are considered to be some of the greener blockchains, all operating on a variation of a PoS consensus. While coins like Bitcoin and Ethereum are on entirely the other end of the spectrum and have a significantly higher requirement for energy usage.
Mining in any form has negatively impacted the environment, and crypto mining is no different. The global climate crisis is a result of using oil and natural gas as the main power source globally. We have the resources and technology to change our energy source, but it doesn't seem as though things will change anytime soon. The solution for crypto mining’s energy problem is the same solution for the world’s carbon emissions problem, to change the source of the energy.
Proof-of-Stake consensus algorithms have been a huge step in the right direction for the cryptocurrency industry, making a notable difference in the requirement for energy to power the network. This is especially true for nearly all new networks. As well as PoS, there are networks like Avalanche (AXA) that was developed to allow Ethereum to work more effectively and efficiently, acting as an Ethereum-compatible network where developers can work to create Ethereum-based products and services.
Proof-of-Stake consensus blockchains are considered greener as they use far less energy than Proof-of-Work consensus algorithms as we see with Bitcoin. PoS networks are prevalent among the most popular coins, which does indicate a positive industry shift away from PoW. However, cryptocurrency’s problem with energy is down to the energy source, which is consistent with the global environmental problem and one that needs to be fixed.