Bitcoin mining consumes the world’s 0.6% electricity supply.
The debate about the energy consumption of Proof of Work (PoW) of cryptocurrencies is well known.
Now it is making rounds among European regulators.
PoW Mining Can Exacerbate Climate Change Issue
Erik Thedéen, Vice-Chair of the European Securities and Markets Authority, told the Financial Times that Bitcoin Mining exacerbates the climate change issue.
He opined that Crypto Mining poses a risk to meet the goals set in the Paris climate protocol. That’s why he called for a ban on PoW Mining and encouraged Proof of Stake (PoS) Mining to reduce energy usage.
“We need to have a discussion about shifting the industry to a more efficient technology,” Thedéen said.
Proof of Work
PoW is a consensus mechanism wherein all the miners/validators compete with each other to solve cryptographic computations that verify the transactions in a block. The first one to do so is rewarded with the native token of the blockchain.
To make such computations the miners/validators expend a lot of energy.
Proof of Stake
On the other hand, the PoS consensus mechanism uses pseudo-random election to select a validator for the next block. To become a validator, a person must ‘stake’ the native token as a security. This stake acts as a deterrent for the validator from becoming a malicious actor because if a validator is proved malicious, their stake can be confiscated fully or partially.
“The financial industry and a lot of large institutions are now active in cryptocurrency markets and they have [environmental, social and governance] responsibilities,” he added.
As per the data from Cambridge Bitcoin Electricity Consumption Index, Bitcoin consumers 0.6% of the global electricity produced.
Thedéen called mining a national issue in his home country of Sweden because of the rising proportion of renewable energy devoted to crypto mining.
He questioned the ‘social benefit or crypto’ and warned that a significant amount of renewable energy would be used up for Crypto Mining rather than aiding the traditional services in moving away from fossil fuels.
Industry is Looking for Solutions
Taking all these issues into account, Ethereum, the world’s 2nd largest cryptocurrency, is planning to move to the PoS consensus mechanism.
Crypto Mining’s carbon footprint was one of the cited reasons for China’s crackdown on the crypto industry.
Bitcoin is the world’s largest cryptocurrency. It is the godfather of all cryptocurrencies. Improvement of technology is gradual. Bitcoin does not support smart contracts as much as Ethereum does. Smart contracts made Decentralized Finance (DeFi) possible.
The same way the industry is trying to find eco-friendly consensus mechanisms.