How To Invest In Ecofriendly Cryptos

There have been multiple reports on the negative impact of crypto mining on the environment. According to the Digiconomist, a single Bitcoin transaction eats up nearly 2,264 KWh of energy; that’s enough to power the average American household for 75 days. This is staggering given the fossil fuel and climate change hurdles we currently face. Most of this power consumption can be attributed to the notorious proof-of-work (PoW) consensus mechanism.

As all decentralised blockchain currencies operate without any intermediaries or central authority, they require network users to reach a mutual agreement (consensus) regarding the authenticity of a transaction. There are different ways (mechanisms) to do this, and proof-of-work (PoW) is one of them. It requires users to devote substantial amounts of computing power (and therefore electricity) to verify transactions. Two of the largest blockchains, Bitcoin and Ethereum, use the PoW consensus mechanism.

But now, due to rising concerns, people have started looking at eco-friendly alternatives. And to the credit of the crypto industry, there have been many sustainable, carbon-neutral cryptocurrencies popping up in the last few years that also serve as viable investment options.

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The outcry for sustainability

Over the last couple of years, several countries have started realising the environmental impact of crypto mining. China even banned crypto mining in 2021 citing environmental concerns. More recently, New York also passed a law prohibiting Bitcoin mining in the city.

With lawmakers and environmentalists from all over the world raising questions, the crypto industry was forced to respond quickly and decisively.

For instance, Ethereum began working on a new consensus mechanism to replace the power-intrusive PoW consensus mechanism. It is currently moving to the proof-of-stake (PoS) consensus mechanism, a more sustainable alternative. And while the change is still underway, it is expected to reduce energy consumption by 99.95 percent.

Instead of using extensive energy-consuming hardware, PoS only requires validators to lock in a certain amount of the blockchain’s native currency to verify transactions and mine new coins. This consensus mechanism offers the same level of security and transparency with little to no energy consumption.

A shift towards renewable sources of energy

China held about half of the world’s Bitcoin mining operations. After the sudden ban, these operations moved to other countries that were more welcoming towards Bitcoin mining. However, moving to a suitable geographical location was not the only thing to be considered. They knew that anywhere they went, regardless of how welcoming the country was, the environmental concerns would catch up to them eventually. So, many mining companies started looking into sustainable energy sources for their mining operation.

For instance, Texas was a city that welcomed miners with open arms. But the city also pushed miners to experiment with alternative energy sources like wind and solar. They wanted mining companies to set up operations using these sustainable energy sources. Mining companies were happy to find alternative energy sources, too, as it would change their public perception and let them operate efficiently without constraints from lawmakers.

One example is the Houston-based tech firm Lancium. Last year, they announced that they would invest $150 million into renewable-energy mining plants in 2022.

Investing in eco-friendly crypto

Investing in eco-friendly cryptocurrency can be as simple as choosing a coin that does not use the PoW consensus mechanism, as it is the main culprit behind the staggering energy consumption levels. But there are also many coins that have also incorporated renewable energy into their working model.

Some of these cryptos are:

Cardano: The Cardano network was founded by one of the co-founders of the Ethereum network, Charles Hoskinson. It is one of the most well-known PoS cryptocurrencies in the market. Unlike PoW blockchains, Cardano does not require immense computational power. It only requires users to dedicate a small amount of the blockchain’s native currency to qualify as miners and mint new coins. Not only does this make it less power-intrusive, but it also makes it much easier to scale.

Nano: Founded in 2015, the Nano network aims to provide a sustainable digital payment system for its users. Instead of mining, the network relies on a “blockchain lattice” technology that creates user blockchains for everyone on the Nano network. The amount of energy necessary to confirm the transactions on the blocks is so low that it can be compared to the energy consumption levels of an ordinary computer. As such, its carbon footprint is almost negligible.

Stellar Lumens: Stellar Lumens is an open-sourced blockchain platform that facilitates a global payment system similar to Ripple. The unique thing about Stellar Lumens is that it uses a consensus model that is not only environmentally friendly but is also faster than PoS and PoW. It uses a group of trusted, pre-decided nodes to verify transactions.

Chia: The chia network was created by Bram Cohen, founder of the famous peer-to-peer software downloading platform, BitTorrent. It uses the unique proof-of-space consensus mechanism that utilises the hard drives of computers and laptops to mine Chia coins. Unlike Bitcoin, it does not use a computer’s processors, leading to less energy consumption.

Algorand: Algorand is the first pure PoS blockchain. And according to Yahoo Finance, Algorand is also one of the first carbon-negative blockchains. The network has set up a smart contract that automatically deducts a portion of every transaction fee and sends it to a self-sustainability fund that will be used to cover carbon offsetting activities. The Algorand blockchain has also found several use cases across industries, making it a viable investment for many.