There is a lot of confusion regarding the concept of a green or ecological cryptocurrency. Many projects, according to Coinmarketrate.com, taking advantage of the Bitcoin energy crisis. They tried to present themselves on the market as a real green alternative, and could offer the same level of services and security as BTC, while consuming only a small part of the electricity of the first blockchain
Before starting to choose the most interesting green cryptocurrencies, both in the form of investments and instead of them as an alternative for payments and services, it is necessary to consider the most important topics for this sector.
This is the first problem of those who want a more environmentally friendly world of cryptocurrencies than the current one. It would be appropriate to make a brief historical digression into the world of blockchain to understand how we got to this point.
- The first blockchains
We can talk about Bitcoin, but also about Ethereum, Dogecoin or even ZCash and Monero. They are all based on the POW consensus, albeit with different characteristics. In short, the network uses very complex calculations to verify transactions. These calculations consume a lot of energy, and therefore are responsible for the impact of the blockchain world on the environment.
- Crypto Energy Consumption
Consumption is one of the most important aspects for a green cryptocurrency and largely depends on the type of technology.
To date, Bitcoin transactions (taking into account only this factor), is the most polluting and least environmentally friendly blockchain. However, as we will see later, it is necessary to take into account other types of problems that can refute our ideas about the impact of cryptocurrencies.
Proof of Stake
The first revolution occurred with the world of consensus algorithms with the advent of Proof of Stake, and after it and Delegated Proof of Stake (DPoS). In order not to turn this article into another treatise on these technologies, we can finally say that with PoS there is no longer a need for very complex calculations. Transactions are confirmed by those wallets that have blocked a certain amount on the network. And who, therefore, is interested in ensuring the reliability of the network, reducing energy consumption and greater scalability.
Geography of mining
In order to fully consider the issue of green cryptocurrencies, at least for those where energy-type mining still exists, it becomes necessary to investigate the resources where mining takes place.
In the case of Bitcoin, a strong concentration was in China, where regulatory requirements regarding environmental impact and energy consumption are relatively lagging behind the so-called Western world. Today, mining has moved to the United States, and the rhetoric has changed a little.
In the case of Ethereum, on the other hand, we have something more distributed, even if taking into account the fact that you can mine using video cards, many do it from home, where it is not to say that you always have access to clean energy.
The data on an individual transaction is actually not always true. Rather, it is not data that can tell the whole story of cryptocurrency consumption. There are cryptocurrencies that consume a lot for a single transaction, but without increasing this consumption as the number of transactions increases. Others have an excellent starting point, after which the consumption increases. We will need to take into account the big picture in order to have an effective idea of what is in front of us.
What is an efficient and green cryptocurrency?
To answer the question, we can consider as an environmentally friendly cryptocurrency one that, by its design, has very low energy consumption, mainly uses renewable sources for its work and does not produce waste (think about equipment that could break down at the stages of mining).
These factors are difficult to observe, so not all projects claiming to be “eco-friendly” should be considered as such. Which we will analyze precisely in the course of our in-depth study.
How the Green Cryptocurrency Works
Green cryptocurrencies can be divided into two macrofamilies. That is, those who seek to offer the services of a classic block chain, while offering extremely low consumption, or cryptocurrencies and block chains born specifically for environmental purposes. We will tell you about both families. However, it is already important to understand what is the difference between these different categories:
- Cryptocurrencies with low consumption
These are classic blockchains, so they are designed to offer transactions, on the one hand, and infrastructure, on the other. However, at the same time, they strive for more efficient or, in any case, less demanding algorithms in terms of electricity consumption. Taking into account the transition of Ethereum to PoS validation, there are very few new-generation cryptocurrencies that do not belong to this particular family.
Even in the family of green cryptocurrencies, we can find two separate and unrelated sets.
- Cryptocurrencies Born with Environmental Goals
There are several of them, especially in the world of renewable energy sources. Some represent the use of solar energy, while others offer rewards to users for reducing their environmental impact. They are very specific and hardly compete with the largest projects in the world of cryptocurrencies.
What makes cryptocurrency green? In fact, we cannot only look at the current impact in terms of consumption and therefore CO2 emissions. To be eco-friendly, the blockchain ecosystem must necessarily be effective, and for its calculation it is necessary to resort to other types of factors.
Consumption per transaction
This is the main criterion that allows us to almost immediately separate crypto pollutants from those that, on the contrary, have a more ecological position. If the blockchain consumes less energy for a single transaction, we can be relatively sure that we are ahead of the “green” cryptocurrency.
However, this is a topic that can be unsatisfactory, especially in the medium and long term, for those who want to choose a truly eco-friendly cryptocurrency.
The first question to ask is: how much does the network consume per transaction?
Scalability means the ability of the blockchain network to seamlessly support a large number of transactions. What does scalability have to do with environmental impact? This is very important because different networks manage to have a very low impact, as long as we are talking about reaching the optimal point for the number of transactions in the network per second. If this limit is exceeded, networks can become much more expensive in terms of energy consumption.
Scalability is also a key factor for ecological cryptocurrencies.
No PoW protocols
If the main theme is eco-friendliness, that is, using as little energy as possible, PoW, which is used by Bitcoin and several first-generation projects, cannot be part of the equation. PoS, which Ethereum is moving towards with version 2.0, is much more efficient in this regard. Someone (for a good reason), emphasizes the fact that we are faced with potentially less secure protocols, but if the only criterion should be the criterion of stability, we may prefer PoS.
Many of the blockchain protocols that we will find among the environmentally friendly and less polluting ones actually pay a high price, often implementing centralization by design. This allows you to make transactions at lower prices.
But there are those who have very low consumption and provide greater scalability for blockchain projects. Those who choose sharding have an important competitive advantage, because they can put up more transactions per second, all other things being equal. There are several projects that are currently implementing this type of infrastructure, and which have also done so to reduce the level of energy consumption.
There are several intermediaries who can offer us the opportunity to invest in environmentally friendly and environmentally sustainable cryptocurrencies. This is a new subcategory of the sector, which may be interesting precisely because it is also more appreciated in the business world. However, not all intermediaries should be considered equal. Conduct research, study and enter the world of cryptocurrencies.