Cryptocurrencies like Bitcoin have been touted as the future of money. However, cryptocurrencies use heavy-duty, energy-hungry computers to verify transactions and mine new coins. This has environmental activists worried. As a result, there has been a surge in interest in cryptocurrencies that are environmentally friendly.
Let’s take a look at a few of the most environmentally friendly cryptocurrencies.
Why are some cryptocurrencies not environmentally friendly?
Bitcoin is created through a process called mining. High-powered computers compete to verify transactions by solving a complex series of algorithms in return for new coins.
Previously, mining could be done on a normal home computer. However, only 21 million Bitcoins exist. The more Bitcoins that are mined, the more challenging the algorithms that miners need to overcome to get new coins.
With around 18.5 million Bitcoins already mined, the average computer can no longer mine them. The process now requires special supercomputers that can handle the intense processing power needed to solve these mathematical problems.
Naturally, these supercomputers use a lot of energy, most of which comes from non-renewable sources like fossil fuels.
According to a BBC report, the Bitcoin network consumes 121.36 TWh of electricity per year. This is more than the annual amount used by Argentina. Another major coin, Ethereum, uses around 50 TWh per year, according to Digiconomist. This is about the total consumption of Peru.
As the price of cryptocurrencies like Bitcoin goes up, so will the competition to mine them. This means that the amount of energy used in the process will also continue to rise. Inevitably, this has environmentalists concerned and has sparked interest in more environmentally friendly cryptocurrencies.
Just recently, Elon Musk, the CEO of Tesla, announced that the electric car company would stop accepting Bitcoin as payment due to concerns about its environmental impacts.
Which are the most environmentally friendly cryptocurrencies?
Let’s take a look at five of the most environmentally friendly cryptocurrencies.
Nano (previously known as Raiblocks) has one of the smallest energy footprints in the crypto market, with a single Nano transaction consuming only 0.000015% of the energy consumed by a single Bitcoin transaction.
There is also no mining in Nano. Its network instead relies on other energy-efficient processes. What’s more, its transactions are almost instant and fee free, making it perhaps one of the most efficient environmentally friendly cryptocurrencies out there.
Cardano uses a system known as ‘proof of stake’. This is different from the ‘proof of work’ system that other cryptos like Bitcoin use. ‘Proof of work’ requires those involved to prove that they have undertaken some work as part of the blockchain. Proof of stake requires users to purchase tokens in order to join the network, which reduces the amount of energy required.
Unlike other cryptos, IOTA does not use a blockchain. Instead, it uses an alternative technology called ‘Tangle’ that does not require miners. The network is maintained by smaller devices and uses calculations that require less power and energy per transaction.
Chia uses a system known as ‘Proof of Space and Time’ which relies on transaction validators having some amount of free storage space on their computers.
When the currency needs to validate a new transaction, one new computer is selected randomly to do it in a kind of lottery. Since computers are not in a cut-throat race to validate transactions, as they are with Bitcoin, the need for enormous amounts of power is reduced.
Solarcoin not only consumes less energy but also actively promotes more sustainable methods of generating it. The coin incentivises solar energy installations. Users can earn one Solarcoin for each megawatt-hour (MWh) generated by solar energy.
Should you invest in environmentally friendly cryptocurrencies?
These are just a few of the most environmentally friendly cryptocurrencies available today. As the crypto space grows, we are likely to see more come into the market.
However, the crypto market is still highly speculative and volatile. If you are thinking of investing in this space, don’t forget to do your due diligence and don’t invest more than you are willing to lose.
Remember that there are numerous other ways to invest your money that are far less risky, such as investing in stocks and shares.
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