Towards a Greener Future: Top Eco-Friendly Cryptos
With the increased focus on climate change, it is almost impossible to hide the impact of cryptocurrencies mined using massive amounts of energy. As evidence of bitcoin's footprint on the environment comes to the forefront, crypto-enthusiasts and the general public are asking how to make the cryptocurrency ecosystem more environmentally friendly.
China, where more than 75% of bitcoin is mined, has imposed severe restrictions on miners, and in some provinces, they have even been driven out completely. As for companies, more than 150 companies and individuals from the financial, energy and technology sectors recently signed the Crypto Climate Accord, pledging to come together to decarbonise the industry. They have set a 'net-zero' goal for cryptocurrencies by 2030.
One of the ways cryptocurrency companies are ‘greening’ things is by promoting currencies based on Proof-of-Stake or similar models, as opposed to the Proof-of-Work models that underpin popular coins like Bitcoin or Ethereum.
What is Proof-of-Stake and Proof-of-Work?
The Proof-of-Stake (PoS) and Proof-of-Work (PoW) models are types of consensus mechanisms and are a basic requirement for validating transactions taking place in the blockchain.
Proof-of-Work Proof-of-Work (PoW) is based on an advanced form of mathematics called 'cryptography', which uses complex mathematical equations. Once the equation is solved, the network considers the transaction to be genuine. However, complex equations can only be solved with very powerful computers, which require a lot of time and therefore energy. PoW is the foundation on which blockchain authenticity holds and it is built into the system of early and most popular cryptocurrencies, such as Bitcoin and Ethereum.
**Key Fact: **According to Digiconomist's Bitcoin Energy Consumption Index, it takes 2,157 kWh per bitcoin transaction. That’s equivalent to approximately 53 days of power for the average US household.
Proof-of-Stake The Proof of Stake model uses an entirely different way of validating transactions and achieving consensus. Instead of solving complex mathematical problems, in PoS digital asset mining, it is linked to how many coins a person has "frozen" for the particular blockchain they are trying to mine. This usually converts into a significant monetary investment.
Are you worried about the carbon footprint of your crypto investments? Here are some green cryptocurrencies you might consider:
Cardano, developed by Ethereum co-founder Charles Hoskinson, is one of the most well-known examples of the Proof of Stake-based cryptocurrency. It uses a system called Ouroboros, in which instead of mining, users must buy tokens to join the network.
Ethereum is the world's second most capitalised cryptocurrency after Bitcoin. An important upgrade of the network is underway, after which Ethereum's carbon footprint will be significantly reduced. Ethereum 2.0, called Serenity, is set to replace the Proof of Work consensus mechanism borrowed from bitcoin with Proof of Stake.
Algorand operates on the Proof-of-Stake consensus mechanism, which means it has the same benefits that Ethereum 2.0 will have.
The developers of Algorand often claim that the cryptocurrency was created to be as energy-efficient as possible. The Algorand Foundation, a non-profit organisation, teamed up with ClimateTrade in April 2021. This powerful alliance ensures that the blockchain is carbon-neutral and can track emissions.
As with Ethereum, Algorand supports the creation of smart contracts and NFTs. In terms of transaction throughput, it is better compared to competing cryptocurrencies. It supports more than 1,000 transactions per second, ahead of bitcoin's capabilities.
Stellar was initially created as an open-source alternative to Ripple (XRP). As a result, it turned out to be the cryptocurrency with one of the lowest fees. Unlike Ripple, Stellar has as its backing a non-profit development fund that looks after the development of the network and numerous partnership agreements.
Stellar uses the Federated Byzantine Agreement (FBA) algorithm for scalability. This system uses a mathematical model of consensus between different pre-approved validator nodes in the network. These nodes are deemed trustworthy, eliminating the need for an energy-intensive validation process.
Hedera Hashgraph (HBAR)
The HBAR decentralised public network is flexible enough to be used in a variety of transactions as well as to protect the network. It is based on Directed Acyclic Graph (DAG) protocols and is highly energy efficient. In addition to its low internal impact, it is also used to facilitate sustainable energy projects.
Improved consensus mechanisms and a focus on renewable energy will reduce the overall environmental costs of cryptocurrencies and blockchain networks in widespread adoption. Electronic waste from legacy mining operations remains an issue, but PoW-free digital assets reduce the demand for new and larger miners in the future, potentially reducing the amount of such waste.
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