How to Solve the Environmental Impact of Bitcoin Mining

Viktor Kochetov, CEO of Kyrrex, discusses environmentally friendly sources of energy, alternative mining protocols, and more.

Environmental consciousness has become an inseparable element of modern progress and innovation. It is no longer an option for companies and governments. Instead, sustainable development is the only path for humanity to avoid major shocks, deficits, and climate-related adverse events.

In this context, cryptocurrencies and crypto assets continue disrupting financial and other sectors. Blockchain has become a crucial element of the systems seeking minimization of the negative environmental impacts through smart contracts in supply chains.

Rising Environmental Concerns

Nevertheless, the foundational element for Bitcoin – proof-of-work (PoW) mining – remains damaging to the environment. This process involves solving mathematical problems for determining a 64-digit hexadecimal number or ‘hash’ equal or sufficiently close to the target hash. The mining is necessary for creating new cryptocurrency coins, such as Bitcoins, and the support of the existing system to avoid double spending. Yet, it requires significant computational power in terms of hardware and energy.

In many instances, miners were using dirty energy, such as the one generated by the coal plants. Even those using less environmentally harmful resources, such as natural gas, still rely on fossil fuels. These mechanisms raise several concerns. The primary one relates to the sustainability of such a mechanism. Furthermore, the increasing difficulty of calculations with the simultaneously rising number of miners and crypto users exacerbates the issue.

Possible Solutions

Naturally, the global community has begun considering the potential solutions. These solutions commonly fall into one of the three categories. The first one relates to using environmentally friendly sources of energy, such as solar, wind, and water. Such an alternative is a preferable one. In addition to the minimized carbon emissions, it would stimulate investments in the green infrastructure that would be available for other future purposes. The main drawback of such an option would be the inherent instability of the energy production from the mentioned sources. Furthermore, the current scale of the wind and sun energy-producing capacity is insufficient to support mining operations.

The use of mining as a disposal mechanism for excess energy is the second alternative. It is common for green energy and other sources to produce more power during peak generation periods than is necessary for consumption. Mining could utilize the excess energy and prevent its waste in this context. The solution would require a broad systematic approach, including the infrastructure expansion to support the energy transfer with respectively sufficient investments.

Alternative Mining Protocols

The possibility of using cryptocurrencies without mining and the PoW protocol is the third realistic alternative. In fact, the third-largest cryptocurrency based on market capitalization, Binance Coin, does not use mining at all. Also, Proof of Stake (PoS) protocol addresses the mining inefficiencies of PoW. Specifically, the PoS relies on the proportion of the coins held by a miner for determining the computational power needed to mine a coin. Such a mechanism limits the feasibility of mining by the value of the stake held by an entity.

Final Remarks

The PoS is an example of an innovative approach that reduces the negative environmental effects of mining. It has its drawbacks, such as the growing wealth inequality within the network and the implied influence of the majority holders on the consensus process. At the same time, these innovative solutions are critical for the sustainable development of cryptocurrencies and their acceptance as a medium of exchange.

The experience shows that large companies seek these innovations from cryptocurrencies to meet their environmental, social, and corporate governance (ESG) standards. Naturally, the future of the crypto space depends on its ability to achieve energy efficiency and become the leader in innovative practices.

By Viktor Kochetov, Chief Executive Officer of Kyrrex, a global investing, payment and financial ecosystem.

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