Interest in greener cryptocurrencies is growing after Tesla CEO Elon Musk announced that his company, citing environmental concerns, was suspending the use of Bitcoin to purchase vehicles.
Musk’s announcement sent the price of Bitcoin into a tailspin, with the virtual token dropping from more than $57,000 to below $49,000 in less than 24 hours. Musk, a billionaire who is known for his investments in cryptocurrency, had raised concerns about the impact of mining Bitcoin, which is the energy-intensive process of minting new coins.
To mine for Bitcoin, which now hovers around $35,000, high-powered computers are used to create rigs that verify virtual coin transactions. Many of those rigs are located in China. In fact, the country is responsible for more than 75% of the Bitcoin mining in the world, according to recent research.
The problem with all of the mining taking place in China is that it is responsible for about half of the world’s coal energy generation and is the leading emitter of carbon dioxide on earth, by a huge margin. Musk said in a statement that while he thinks cryptocurrency has a promising future, it can’t come at a major cost to the environment.
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“We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,” Musk said. “Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy. We are also looking at other cryptocurrencies that use <1% of Bitcoin’s energy/transaction.”
But what are those other cryptocurrencies, and why do they need so much less energy than Bitcoin?
Many cryptocurrencies use something called “proof-of-work,” which is an algorithm that secures virtual currencies, including Bitcoin and Ethereum, the second-largest cryptocurrency. Bitcoin operates on a blockchain that contains the history of every transaction.
“Proof-of-work is a necessary part of adding new blocks to the Bitcoin blockchain,” according to CoinDesk. “Blocks are summoned to life by miners, the players in the ecosystem who execute proof-of-work. A new block is accepted by the network each time a miner comes up with a new winning proof-of-work, which happens roughly every 10 minutes.”
There is a newer method of validating blockchain integrity called “proof-of-stake,” which makes it so that miners are not more likely to add blocks by using enormous high-power computer rigs like proof-of-work. Rather, miners’ likelihood of adding blocks is based on if they have a larger proportion of the cryptocurrency being mined — a stake. The more coins held by a miner, the more mining power they have.
Ethereum is moving toward proof-of-stake with Ethereum 2.0, although other viable altcoins already use proof-of-stake and have much less of an impact on the environment than Bitcoin and Ethereum have in their current iterations.
Cardano, which has a token called ADA, is one such cryptocurrency. The proof-of-stake currency began in 2015 as a project designed to “change the way cryptocurrencies are designed and developed,” according to the currency’s website. Cardano was founded by Charles Hoskinson, who was one of the co-founders of Ethereum.
While Bitcoin consumes 707 kilowatt-hours or kWh per transaction, Cardano only consumes a meager 0.5479 kWh, according to TRG Datacenters. It also has the largest market cap of any proof-of-stake cryptocurrency, sitting at nearly $50 billion. Unlike some other cryptocurrencies, it gained in value following Musk’s announcement and hit a high of $2.45 before tumbling to a little over $1 on May 23. It sat at about $1.56 as of Friday afternoon.
Another environmentally friendly cryptocurrency is Ripple, with its XRP token. It doesn’t use a proof-of-work system or a proof-of-stake system but rather uses a consensus protocol to validate transactions and account balances in the system. It uses even less energy than Cardano, with an estimated 0.0079 KWh consumption per transaction.
“As a digital asset itself, XRP was designed with sustainability in mind; it is an inherently green currency,” its website touts. “All XRP is already in existence, meaning no unsustainable mining practices or additional energy is ever required to produce more, unlike other digital assets like Bitcoin and Ethereum.”
As of Friday afternoon, XRP, which has a market cap of nearly $42 billion, was trading at about 91 cents, down from an April high of about $1.80. Ripple is under increased scrutiny in light of a lawsuit from the Securities and Exchange Commission.
Chia Network, a newcomer to the crypto realm, uses a new algorithm it dubs “proof of space and proof of time” to mine tokens. Instead of requiring the massive computer infrastructure of Bitcoin, miners use hard drives to generate and store random numbers, which rewards miners who use more space. Demand for the new Chia tokens has been blamed for recent hard drive shortages, according to the Guardian.
Chia Network, whose logo is literally green and features a leaf, claims in its business whitepaper that it is “intended to be a ‘green,’ eco-friendly alternative” to proof-of-work and pointed out that electricity prices are “largely irrelevant to running storage.” The coin was trading at about $779 as of Friday afternoon, although it was up to more than $1,600 earlier this month.
It is worth noting that Dogecoin, a “meme coin” that has repeatedly been pumped by Musk himself, is also quite environmentally conscious and only consumes 0.12 kWh per transaction, according to TRG Datacenters. It has been trading at about 32 cents after breaching 72 cents on May 7.
Despite Musk’s announcement about vehicle purchases and assertion that Tesla is exploring other cryptocurrencies, Bitcoin surged earlier this week when he tweeted: “Spoke with North American Bitcoin miners. They committed to publish current & planned renewable usage & to ask miners WW to do so. Potentially promising.”
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As a whole, cryptocurrencies, at least in the near term, appear here to stay. Financial services giant Goldman Sachs recently labeled Bitcoin a “new asset class.” And with the global push among companies to be more environmentally conscious, alternative cryptocurrencies such as Cardano, Ripple, Chia Network, and dozens more have the potential to grow in popularity and in price.
