It started much before Tesla-owner Elon Musk’s tweet saying that his company will stop accepting bitcoin payments over concerns about the high environmental impacts of bitcoin mining. While the controversial tweet did significant harm to the crypto industry, causing almost all top cryptocurrencies to lose their values by up to 50%, the real problem started much before. Crypto mining has always been a witness to criticism over its high energy consumption, which is not only depleting natural resources but also affecting the environment in a bad way.
So, is the claim true?
Well, yes. The claim that bitcoin and other crypto networks have high energy usage is somewhat true. As the popularity of cryptocurrencies is increasing, their energy usage and consumption are also rising.
But, is the problem really serious?
Well, yes and no. If we consider the standalone case of cryptocurrencies, the problem surely appears serious. The rate at which mining operations are consuming electricity will likely increase the electricity demand and cost in the future. But, if we compare the energy usage of the crypto industry with that of the traditional banking industry, it appears the latter consumes much more energy.
Let’s get into the details.
Many research studies conducted in the past year have shown that there are financial institutions that consume typically more energy than what is consumed by a single crypto network. For example, a recent research study shows that the University of Cambridge Center for Alternative Finance consumes more energy per hour than the energy used by the Bitcoin network in one hour. The same research confirms that the total energy consumed by the entire crypto network is not even half of the total energy used by the entire banking system.
Then, why is the crypto industry being constantly criticized for its high energy consumption?
That’s because crypto is a relatively newer industry, and one that stands to challenge the authority of traditional financial systems, including banks. Also, since it’s a new system, it is expected to have shortcomings and is, therefore, continually scrutinized to find areas of improvement. In the case of the traditional financial industry, however, the focus is more on current problems such as technical issues and malpractices than on energy consumption.
Since most people still do not fully understand the crypto industry, it is only natural for them to get worried about the energy impacts of mainstream adoption of cryptocurrencies.
And it’s not like the crypto industry is unaware of the problem or doing nothing to deal with it. There are projects already working on making crypto mining more efficient and environment-friendly. Ethereum’s proposed move to a more energy-efficient proof-of-stake mechanism is a good example of that.
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