Cryptocurrencies have
become the new stars of the financial universe. According to a report by Triple-A, the number of owners of these sought-after digital currencies will reach 562 million in 2024, representing a 33% increase from the 420 million in the previous year.
This remarkable growth can be attributed to several factors. One of them is the strength of blockchain, an innovative technology that offers users secure and decentralised transactions.
Another reason for the development of cryptocurrencies is their potential to yield high returns on investments. Additionally, their growing adoption by businesses and retailers has solidified these digital currencies as an efficient and modern alternative to traditional financial systems.
However, the flip side of the resounding success of cryptocurrencies is their environmental impact, as the process that generates them consumes vast amounts of electricity, most of which comes from non-renewable sources like coal or natural gas, contributing to the increase in global carbon footprint.
To better understand this: the process of generating cryptocurrencies, known as "mining," requires enormous amounts of energy due to the need to solve complex mathematical problems to validate transactions.
Miners use powerful computers that operate 24 hours a day, competing with each other to solve these problems and earn new cryptocurrencies as a reward. This process, known as "Proof of Work" (PoW), consumes a significant amount of electricity.
According to a study by the University of Cambridge, the Bitcoin network (one of the most popular cryptocurrencies) consumes more electricity annually than some entire countries, such as Argentina or the Netherlands.
The main consequence of cryptocurrency generation is the emission of large amounts of carbon dioxide (CO₂) and other greenhouse gases into the atmosphere, contributing to climate change and air pollution.
The situation is more severe than many imagine. A study conducted by UN scientists and published in late 2023
the journal Earth's Future states that the global Bitcoin mining network consumed 173.42 terawatt-hours during the 2020-2021 period, resulting in a carbon footprint equivalent to burning 84 billion pounds of coal or running 190 natural gas power plants.
According to the same report, to offset that footprint, it would be necessary to plant 3.9 billion trees worldwide.
Eco-Friendly Currencies to the Rescue
In response to this environmental issue, “green” cryptocurrencies have emerged in recent years, aiming to minimise the ecological impact of digital transactions.
How do they achieve this? By using more energy-efficient consensus algorithms, such as Proof of Stake (PoS) instead of the Proof of Work (PoW) used by Bitcoin and other virtual currencies.
PoW requires large, energy-intensive computers to validate transactions and create new blocks. PoS, on the other hand, allows transactions to be validated on the blockchain without the need for powerful machines or complex calculations, resulting in significant energy savings.
Ethereum, one of the most important cryptocurrencies on the market, has significantly reduced energy consumption thanks to a software update that enabled it to transition from PoW to PoS.
Digital currencies such as Cardano, Polkadot, Tezos, Stellar, and Algorand also already use the PoS system. Others, like Chia, use a mechanism called Proof of Space and Time, which requires much less energy than PoW.
These eco-friendly digital currencies are already being adopted by various companies and projects seeking to combine technological innovation with environmental responsibility.
However, the widespread adoption of green cryptocurrencies still faces many challenges. One of them is market resistance, where Bitcoin and other energy-intensive cryptocurrencies continue to dominate, backed by an infrastructure and user base that are reluctant to change.
Additionally, the lack of specific regulations promoting the use of eco-friendly alternatives limits their expansion, leaving investors without clear incentives to favour them.
Furthermore, traditional investors, although increasingly aware of the need for sustainable practices, remain sceptical about the stability and long-term performance of these new currencies. For green cryptocurrencies to establish themselves as a viable alternative, a coordinated effort between developers, regulators, and the investor community will be necessary, working together to build a crypto ecosystem that balances technological innovation with environmental responsibility.
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