Explaining energy consumption in the crypto industry
Energy consumption is now a major factor for investors in deciding which network to support. Find out why and apply it to your own investment planning.
Explaining energy consumption in the crypto industry
Cryptocurrencies operate on blockchain that rely on mining rigs running 24/7. These can either be desktop computers or dedicated hardware so long as it is connected to the internet at all times. This is a wide-scale operation with millions of miners for every kind of crypto, making up a big portion of a country’s energy consumption.
There are already ways discovered to lessen crypto’s energy consumption but never eliminate their connection. It opens opportunities for more members to join its industry but it’s possible that the surge of users will boost energy consumption once again. Investors worldwide are already wary of this and it affects how they interact with the crypto industry.
How much energy does cryptocurrency use?
If you were to ask ‘how much energy does blockchain consume?’, then the answer depends entirely on the asset. Major contributing factors include its network’s consensus algorithm, its number of users, and the frequency of transactions running on its network.
The cryptocurrency energy consumption chart is mostly focused on Bitcoin because it’s the highest consumer of electricity in the world. Bitcoin (BTC) for example, is estimated to consume 127 terawatt-hours (TWh) annually.
However, Ethereum only consumes 0.01 TWh. It used to be on the same level as Bitcoin because they were both proof-of-work (PoW) networks but it has moved on to a proof-of-stake (PoS) since the Ethereum merge.
Factors that influenced the rise of energy consumption in crypto
How does crypto consume energy? The answer lies in two factors namely the technology used and its growing user base. These also affect how energy consumption rises over time, often to a level that concerns investors and draws the attention of governments worldwide. Here are some of the ways cryptocurrencies increase their use of electricity to a point that it prompts vigilance from authorities:
Proof-of-Work (PoW) dependence on intensive mining
The PoW blockchain pioneered the consensus system for cryptocurrencies. It is Bitcoin (BTC) that popularised its use where miners provide the network’s hashrate via nodes by solving complex mathematical equations per transaction. The first node to solve it is compensated with the fee paid for its use on top of the block created in the process.
Increasing number of miners in the PoW
The problem with PoW is its limited scalability to accommodate its ever-growing number of users. Increasing the number of rigs that provide its hashrate speeds up transactions but each one adds to the overall energy consumption. Many miners create mining farms where they set up several rigs in one place, causing a household to rival the electricity bill of an entire town.
Popularity boom of Bitcoin and similar cryptocurrencies
When asked ‘how much energy does crypto use?’, Bitcoin is credited for the majority of it. What’s concerning is that it isn’t the only PoW blockchain available. There is Litecoin and Dogecoin which both consume less, largely thanks to their more scalable algorithms.
Effects of rising energy consumption because of crypto
There are many reasons that discourage investors from investing in assets responsible for high energy consumption. One of which is the matter of paying the electricity bill which isn’t much of a deterrent because mined cryptocurrency can cover it. However, these two factors make it alarming not just for investors but also for the local governments handling its regulations:
Rising CO2 emissions
The most concerning aspect of cryptocurrency energy consumption is the type of energy source it uses. Most miners primarily rely on fossil fuels, most notably coal. Crypto mining becomes hazardous for the environment because it’s a major contributor to carbon dioxide (CO2) emissions.
The severity of this issue became alarming in China that the authorities banned financial institutions from offering cryptocurrencies in May 2021. It was the time when they were one of the top countries for fossil fuel use but it’s also a prime moment when they have high toxicity in the atmosphere.
Bad PR for decentralised finance as an industry
Being responsible for a fraction of the world’s CO2 emission is a status that many people don’t want to be associated with. Thus, there are millions of potential investors who are interested in crypto’s profitable industry but choose to abstain from its space. It also attracts ire from activists who don’t fully understand the technology, further giving blockchain bad press.
This concern was addressed by many prominent figures in the investment community. That includes Elon Musk who stopped Tesla from accepting the currency in 2021 despite being one of its major evangelists. There’s also Wall Street which avoids PoW networks in general because of environmental, social, and governance (ESG) investing standards.
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Solutions made to help drop energy consumption in crypto
Fortunately for investors and holders alike, there are solutions for crypto’s energy consumption problem. Here are two of the most influential ones with contributions so impactful that they forever changed how blockchain technology is built and used:
Funding of alternative energy
The first solution is finding alternative sources of energy. That means mining rigs can be hydro-, solar-, wind-, and nuclear-powered. These technologies were already in development even before Bitcoin was released in 2009 but investment in the infrastructure became even more popular now.
Creation of Proof-of-Stake (PoS)
PoS is intended to succeed PoW as the optimal blockchain consensus system. It doesn’t need miners to provide powerful rigs to solve any equation. Instead, it selects a stakeholder’s node based on a criterion that is unique to every asset to determine who gets to validate a transaction.
ETH is the best example of this because it started as a PoW network, then it moved to a PoS one after the Ethereum Merge in 2022. This reduced its energy consumption by 99.99% not just for its main asset but also all of its layer 2 tokens. Newer digital assets like Polygon (MATIC) and Cardano (ADA) are also using this technology.
What is the state of energy consumption now in crypto?
Cryptocurrency energy consumption is affected by all the transactions happening on its network. That includes making big investments as well as deposits and withdrawals at Gamdom. However, it is no longer a big issue now as it was years ago. All involved parties have worked together to ensure that crypto electricity consumption is regulated thanks to alternative energy.
Not to mention that Ethereum’s move to PoS also affected various tokens relying on its network. This includes Tether (USDT) which is a popular asset in Gamdom. You can invest in these assets and use their networks guilt-free thanks to these innovations.
