Elon Musk, the CEO of Tesla, announced over the weekend that his company might sell its Bitcoin assets, causing the crypto asset to plunge.
It came after Musk announced earlier this month that his company would no longer accept the crypto as a payment option for its electric vehicles, due to rising environmental concerns.
Bitcoin is generated by solving complex mathematical equations, which can only be done using high-powered computers. These computers consume a significant amount of electricity, which is frequently produced using fossil fuels. Tesla’s retreat is a setback for Bitcoin, whose value soared after Tesla joined the team.
Tesla’s stance turns the attention to the biggest downfalls of cryptocurrencies such as Bitcoin, which is the damage they cause to the environment.
How grave is the effect of crypto on the environment?
So, how is Bitcoin – and a slew of other cryptocurrencies – harmful to the environment?
It all boils down to how much energy was used to make it. Until a Bitcoin transaction may be completed, the individual spending the currency must be checked as the rightful owner. The transaction must also be digitally registered in a database known as a “blockchain” ledger until it is completed.
Unlike conventional banks, where transactions are checked and registered centrally, Bitcoin’s ledger is made up of a distributed database of users. They check transactions by using high-powered computers to solve complex mathematical problems. Bitcoin is awarded to the first person who solves the equation and adds it to the blockchain. This process is called mining.
When more computational power is added to the problems, the Bitcoin method increases the complexity of the problems over time. Mining could be performed by geeks in their bedrooms using home computers in the early days. It is now often performed in large rooms with extremely costly specialized equipment that only corporations can afford.
The procedure consumes a significant amount of electricity. Bitcoin, according to the University of Cambridge, consumes more energy each year than the economies of Argentina and Sweden combined.
Renewable energy accounts for a portion of this power. However, studies show that the majority of Bitcoin mining takes place in China, with coal as the primary energy source. According to a recent report published in Nature, Bitcoin operations in China are on track to produce 130 million tonnes of greenhouse gas emissions by 2024, which is more than the Czech Republic’s entire economy.
What’s a very concrete solution to this problem?
Is there a more environmentally friendly choice to Bitcoin and “proof of work”?
Stephen Reid, who ran for the Green Party in the General Election in Totnes, England, is one of the teachers of Tools for the Regenerative Renaissance, a course that blends technology and blockchain education with climate awareness.
Proof of stake is the most promising alternative to proof of work. Blocks are “forged” rather than “mined” in proof of stake blockchains, and instead of solving difficult puzzles, the maker of the next block in the chain is selected using a combination of randomization and the amount of cryptocurrency they own – the stake.
Proof-of-work blockchains are planned to run 24 hours a day, 7 days a week. Blockchains based on proof of stake only require computers to run for milliseconds at a time. Proof of stake has the ability to drastically reduce the amount of energy required to add blocks to a cryptocurrency’s blockchain because it does not involve hard computational work.