Bitcoin alternatives: The ‘green cryptocurrencies’ that want to solve Elon Musk’s crypto climate concerns

Andrew Griffin
Thursday 13 May 2021 18:21
How is Bitcoin fueling climate change?

Elon Musk’s surprise announcement that Tesla would stop supporting bitcoin amid fears over the environmental impact of cryptocurrency has led to new interest in digital currencies that might prove more sustainable.

In a tweet, the Tesla chief executive said that the company had become “concerned about rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel”. He did not indicate what had brought him to that realisation, which comes after a period of heavily promoting a variety of cryptocurrencies.

But he did suggest that it would be possible to change in the future – if cryptocurrencies were to become more sustainable.

Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment,” he wrote in the statement posted to Twitter.

“Tesla will not be selling any bitcoin and we intend to use it for transactions assoon as mining transitions to more sustainable energy. We are also looking at other cryptocurrencies that use <1% of Bitcoin’s energy/transaction.”

The concern about bitcoin’s energy use is far from limited to Mr Musk. In recent times, and amid growing prices and interest in cryptocurrency, alarm has been raised that the amount of energy it uses is unsustainable.

Bitcoin now uses more electricity than Sweden or Malaysia, according to the Cambridge Bitcoin Electricity Consumption Index. And it is growing all the time, with the estimated consumption nearly three times more than it was this time last year, according to the same data.

That energy use is built into bitcoin – it is not an accident but an intentional and designed part of the system. That is because it is built on the idea of “proof-of-work” mining.

The blockchain – or the shared, decentralised ledger that means that there is no authority on who owns what bitcoin, with that job instead shared out between various people – needs a way to establish consensus between all those different parts of the network. And, for bitcoin, proof-of work is how that happens.

Proof-of-work is built to ensure the stability and functioning of the cryptocurrency, by ensuring that those involved can only participate if they are able to show they have undertaken some work as part of the blockchain. Within, that is done by having computers undertake doing difficult puzzles, which can only be worked out by brute force.

As such, miners are locked in an ongoing fight to beat other miners to the answer. And the only way to increase the likelihood of success is to do more calculations – using more computing power, more equipment, and more energy.

That process has to be inefficient, or the mining would not work, and the systems that underpin bitcoin would not function properly. But it also means that bitcoin’s energy use is inescapable.

One way to resolve that is to have that mining work done using sustainable energy. But there is no way to guarantee that, and since in many parts of the world fossil fuels remain the cheapest source, that dirty work will continue.

Another solution has arisen, however, and aims to offer an alternative to some of those unclean foundations. Other cryptocurrencies – known as altcoins – have been established that look to resolve some of those issues.

The most famous environmentally conscious cryptocurrency is cardano – or more precisely ada, which uses that platform to allow for transactions to happen. That is because it is built on the idea of proof-of-stake, rather than proof-of-work.

Instead of requiring computers that are part of the network to do pointless and dirty work to prove themselves, proof-of-stake allows people to mine according to how much of the cryptocurrency they hold. That sets limits in the same necessary way, but without requiring the same amounts of energy.

All of this seemed to work on cardano’s advantage after Mr Musk’s announcement. As other cryptocurrencies plunged, it continued to grow – it has gained almost 10 per cent in the last 24 hours, compared with a market that has dropped 8.6 per cent.

The Cardano Foundation, which administers the technology, even posted a tweet that suggested that it could work with Tesla and that the two organisations had similar goals.

Cardano is not the only cryptocurrency to use this technology. Litecoin and others do too – and, theoretically, it is possible for just about anyone to create a new altcoin that does so, at any time.

Others have gone even further, and not only minimised their energy usage but actively promoted cleaner ways of generating it. SolarCoin, for instance, is intended to reward solar power installations; it works by giving new coins as a reward for producing energy, with every MWh of solar production rewarded with one SolarCoin.

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