JAKARTA – The increasing popularity of cryptocurrencies in recent years has attracted the attention of the global community to invest their funds in these blockchain-based digital assets.
Currently the crypto market is experiencing a downturn, causing panic among investors that they are forced to sell their crypto holdings to save the remaining funds.
On the other hand, cryptocurrencies are said to have a big impact on the climate. The reason is, a number of cryptocurrencies such as Bitcoin, Ethereum, Dogecoin, and other cryptocurrencies that use the Proof-of-Work (PoW) algorithm. This PoW model allows mining activities using high computing devices.
These activities are claimed to have a significant influence on climate change. In early 2021, electric car company Tesla accepted Bitcoin payments. However, in May 2021, Tesla boss Elon Musk announced he was suspending BTC payments. He reasoned that the largest cryptocurrency by market capitalization was “harming the environment.”
“Cryptocurrency is a good idea on many levels, and we believe it has a bright future. However, this does not mean that it has to be detrimental to the environment," said Elon Musk on his Twitter account, @elonmusk, Friday, May 14, 2021. But not long after, Musk again announced that he was accepting Tesla car purchases with Bitcoin.
Actually, the issue of crypto and climate change is nothing new. Experts have conducted a number of studies regarding the impact of cryptocurrencies on the environment. According to a report published in the science journal Joule in 2018, the world's largest cryptocurrency Bitcoin is reported to have produced 22 million metric tons of carbon dioxide equivalent per year.
Then in 2020, Cambridge University conducted a survey and found that 75 percent of mining activity uses renewable energy. About two-thirds of the energy used comes from fossil fuels.
For information, the use of fossil fuels can produce carbon which has an impact on global warming and climate change. In recent years, the increasing condition of global warming has been felt by the inhabitants of the Earth in various countries.
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According to a report from TheConversation, the Proof-of-Work model used by various cryptocurrencies has caused a devastating impact on Earth. In the UK alone, crypto mining activity consumes 300 maintained (TWh) of fossil fuel electricity per year. According to the report, Bitcoin's annual carbon footprint is around 114 million tonnes. This amount is equivalent to the activity of 380 thousand space rocket launches.
It doesn't stop there, the IMF recently stated that Bitcoin consumes millions of times more energy than credit cards. The calculations are based on academic and private sector publications.
In addition, the report examined by Xavier Lavayssièr, Germán Villegas Bauer, and Itai Agur, also shows that central bank digital currencies (CBDCs) and some private cryptocurrencies are actually more efficient than traditional payment systems. Therefore, electricity consumption becomes an important consideration for future money.
Switching to a Proof-of-Stake (PoS) Model
Indeed, the influence of cryptocurrencies that use the PoW algorithm is not only felt by researchers but is also realized by crypto industry players. One of Ripple's (XRP) officials, Chris Larsen, is one of the people who support the transition from the PoW model which is claimed to consume large amounts of energy to the latest generation model that is said to be environmentally friendly, namely Proof-of-Stake (PoS).
The PoS model does not require high-power computing devices. PoS also replaces mining activity with a staking method where crypto owners only need to lock their holdings on the staking platform for a certain period of time. That way the owner will get an additional reward in the form of a certain amount of crypto.
In April 2022, Larsen together with a number of Greenpeace activists actively campaigned for "Change Code, not Climate". The campaign urges crypto industry players to shift to eco-friendly models like PoS.
In addition, the second-largest crypto in the world after Bitcoin, namely Ethereum, is planning to make the switch from PoW to PoS through The Merge project. ETH's transition to a more environmentally friendly model will begin in 2022.
The announcement was made by Ethereum founder Vitalik Buterin at the ETH Shanghai Web 3.0 Developer Summit. At that time Buterin discussed the transition from the Proof-of-Work (PoW) algorithm to Proof-of-Stake (PoS). The much-awaited transition of the Ethereum community.
The transition is said to address a number of issues including Ethereum's high transaction fees, network delays, and more. By switching to PoS, the name ETH also changed to ETH 2.0. The decision will have a positive impact on the Ethereum community, the crypto industry, and the environment.
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