Cryptocurrency is taking some heat from climate change environmentalists. In 2021, digital currency has become mainstream again; critics call out cryptocurrencies and crypto art for their enormous energy consumption. Bitcoin has built up a substantial following in recent years, bringing to the mainstream eye conversations about its energy consumption and other fringe currencies. Crypto scams are everywhere. Does this mean the end of crypto?
China started the energy conversations in 2021 when their government criticized the energy consumption of miners in the Inner Mongolia region. In April 2021, major regional power outages brought even more mainstream criticism of crypto’s energy usage. Elon Musk’s criticism of Bitcoin’s energy and the resulting devaluation of the currencies in the marketplace as related to environmental issues showed us how volatile this issue can be in the currencies. Another trend is drawing attention to crypto’s energy usage; this time, it is crypto art called NFTs.
Crypto art is a piece of metadata (including, generally, an image or link to an image/file, the creator of that file, date stamps, associated contracts or text, and the purchaser of the piece) that is attached to a “token” (which has monetary value on a marketplace) and stored in a blockchain. An individual piece of crypto art is called an NFT. You can think of each NFT as a trading card or a collectible with a unique value that is also affected by the general market value of NFTs as a concept, the Ethereum network, and cryptocurrency in general. Pretty much all NFTs have no value in the last quarter of 2023.
Why Does Crypto Waste So Much Energy?
Crypto mining uses massive amounts of electricity to compute the mathematical equations needed to maintain the crypto environment. In 2021, with the popularity of NFTs, crypto art, known as non-fungible tokens (NFTs), is taking the blame for environmental issues associated with crypto. Environmentalists point to the NFTs as at least partially responsible for the millions of tons of planet-heating carbon dioxide emissions generated by the cryptocurrencies used to buy and sell them. Some artists — including those who have already benefited from the craze — think it’s a problem that can be easily solved. Others think the proposed solutions are a pipe dream.
In 2009, we saw proof-of-work used for a different purpose: making the digital currency Bitcoin. This is a simplified explanation, but to earn Bitcoin, “miners” task their specialized computers to solve those proof-of-work puzzles, competing to validate blocks on the blockchain. A successful solution, which is somewhat rare, rewards the miner with a new coin. This process is called mining.
Computers use a lot of energy to compute these equations. Computing and cooling are two of the energy consumption factors. As Bitcoin and Ethereum have raged in price, mining has become even more competitive. You can think of it as a lottery, with every kilowatt-hour a ticket. Mining in 2009 was a background process that could run on a laptop as it idled. However, the difficulty of mining blocks in the blockchain is designed to increase over time. As the network grows, the relative rate of new coins mined stays stable.
There is nothing special about the energy cost of crypto art that isn’t true for anything else that can be “minted” on the Ethereum blockchain or bought and sold with a currency dependent on burning energy. This is because significant cryptocurrencies, most notably Bitcoin and Ethereum (which is what NFTs are traded with), use a lot of energy to mine. The art community’s loud voice criticizes crypto for its energy use, drawing more mainstream attention than before.
There are some solutions, but we must wait and see what works. As of June 2021, Ethereum creator Vitalik Buterin has promised to reduce energy consumption by almost 99% in his complete overhaul this year. Ethereum shares their plans on their blog. He claims that a tweak from proof-of-work to proof-of-stake will reduce energy consumption. Bitcoin has yet to make plans to transition to a newer blockchain infrastructure, which means its currency will continue to use significant computing power. The energy conversation may lead to determining the crypto winners for the 20s; we will see soon enough. Subscribe for more investing posts. Have a lovely day.
Disclaimer
I want to make it unequivocally clear that I do not promote any cryptocurrency, nor do I endorse any crypto investments. This website is dedicated to providing information and insights into the world of cryptocurrencies to help you better understand what crypto is.
If you ever find yourself in a position where you need to explain your decision not to invest in cryptocurrencies to friends or acquaintances, you can use the content on this site as a guide to discourage people from falling victim to scams or making hasty financial decisions. My ultimate goal is to empower individuals with knowledge and awareness so that fewer people become financial victims.
Life is already challenging with its inherent obstacles; we don’t need the added burden of unscrupulous individuals looking to exploit our hard-earned money. Stay vigilant, stay informed, and make financial decisions with caution. Your financial well-being is of paramount importance, and it is my sincere hope that the information here can assist you in making prudent choices.
