By: Kriti Bisht
Cryptocurrency is a breakthrough system of transaction that has laid out an inspiring new definition of money. It does not rely on government bodies making it a decentralised and universal currency. In the rapidly globalising world, it holds the potential of completely transforming the exchange of resources. But the reliability of this currency also comes at a huge cost. The aspect that makes it so unique in its ability to overcome fraud and corruption is the complexity of its transactions. This authenticity achieved out of very extensive means is however achieved through a lot of, otherwise useless, consumption of energy.
Source: REUTERS/Edgar Su
What is Cryptocurrency Mining?
Bitcoin and cryptocurrency as envisioned by Satoshi Nakamoto were proposed to be a method of electronic transaction that did not have to depend on a trusted third party, like the bank or the government, to ensure it.
Understanding cryptocurrency as a form of monetary exchange could be done by getting the gist of how our general means of a transaction using national currencies works in the present. The value of a banknote, US Dollar or Indian Rupee, is defined and validated by the government. The signature of the RBI Governor on the banknote assures that. While no such centralised body determines or authenticates cryptocurrency, maintaining a blockchain ledger is used to validate its transactions. The value of any cryptocurrency is ascribed through this acknowledgement of the transaction.
Mining is the process through which the transaction log called blockchain is maintained. This auditing is independently done by numerous computers on the bitcoin network around the world that solve highly complex computational problems making a record of the transaction through the unique proof of work. The miner in turn is rewarded with crypto tokens as an incentive. Thus, it is by securing transactions using an energy-intensive proof of work process into a universal ledger that a decentralised currency use is authenticated.
What’s the Issue?
The proof of work mechanism that leading cryptocurrencies like bitcoin and ethereum use to bring new units of currency into circulation and confirm new transactions is primarily designed to use tons of energy. Hence it cannot be compensated for through minor changes for the long term.
Earlier, the mining could be done on standard computers using their CPU, but then miners slowly moved on to GPUs. Bitcoin mining now could only be feasibly carried out via ASICs optimized for better computational power and hash rate efficiency for mining which requires more and more energy.
The Cambridge Bitcoin Electricity Consumption Index by the Centre for Alternative Finance has closely analysed the power demands of bitcoin use since 2017. With steady growth through the years, the statistics show a drastic increase in energy demands in the past year. On the question of the use of sustainable energy, the nature of mining is so independent that making an estimate of the sources of power is not only difficult but also fluctuates a lot. Due to this, it also seems to be difficult to introduce and maintain sustainable changes to the system. However, in terms of general energy consumption, some jarring comparisons like the fact that bitcoin’s mining yearly emissions are the same as that of a small country have set things into context.
Possibility for Change
Crypto with its approach holds great potential for many positive developments in the future. It would allow transactions without limitations or censorship with positive dependence on the incorruptible tamper-resistant public ledger.
The sheer fact that because this currency is decentralised there couldn’t be much authority on ensuring or imposing ethical measures for sustainable methods or use of renewable energy. However, with other newer mechanisms like proof of stake where owners with coins at stake become validators, and rather than a competition-based proof of work mechanism to mine, validators are randomly selected to do the mining, in turn, saving a lot of energy. Other methods for obtaining proof for validity also have the possibility of use. Further, by putting hope on the conscience of big investors and mining firms, and demanding accountability and transparency in their actions, we could perhaps look forward to some independent steps from their end to tackle the issue of sustainability.