The Underestimated Downsides Of Cryptocurrency

By Ryan Bologna

The crash of the cryptocurrency market has been well documented. Unprecedented downturns have Bitcoin, the world’s biggest digital coin, down 70 percent from its high in November 2021. But what exactly is causing concerns for popular currencies like Bitcoin and Ethereum? It’s a bit more complicated than many think. The sustainability of crypto mining has always been in question. Energy bills continue to stay high as the market keeps falling. The situation is tough to evaluate so here’s everything you need to know.

To grasp the situation, you’ll need to understand what mining is. For example, when a Bitcoin is traded, somewhere a computer needs to complete a computation that records the transaction that happened. These computers or “rigs” contain graphics cards that make them equipped to carry out that task. This process is referred to as “proof of work.” It is a very similar process for other currencies.

So why does this take so much energy? These rigs run around the clock, and when the machine takes as much energy to run as an air conditioner, that adds up. Mining businesses also have rooms full of rigs, taking up electricity and creating heat. Knowing that, it is easy to see why sustainability issues exist. To paint the picture even further, crypto mining consumed about as much power as Argentina even with the market crash.

Most miners don’t take into account energy consumption when deciding what coin to mine. An adjustment will likely have to be made, and potential investors should keep an eye on what currencies do to become more energy efficient. That requires transitioning from the proof of work method detailed before.

One alternate method that is used by some currencies like Cardano and Peercoin is called “proof of stake.” The proof of work method causes a lot of wasted energy because it creates competition for miners to validate or keep a record of transactions. Essentially, it’s a lottery that results in a ton of mining rigs running at the same time. Proof of stake chooses validators randomly, eliminating that competition.

So are more currencies considering transitioning to this method? Yes. Ethereum, the second most valuable coin, is transitioning to proof of stake. However, Bitcoin does not seem to be following suit. Representatives from both currencies have taken jabs at each other regarding the method.

There are some who dream of a day where they pay their bills in a decentralized currency, but some changes will need to be made before that happens. Many believe a move to proof of stake could be a step to get us there. However, given how much Bitcoin represents the crypto industry, the refusal to transition from the inefficient method of proof of work could delay that timeline.

Until Bitcoin does make some kind of transition, it would be wise for people considering investing in crypto to stay away. Keep an eye out for currencies that have or are transitioning away from the proof of work method. Given the market overall, it still might not be wise to invest in anything right now, but when we come out of this “crypto winter”, this knowledge will still likely be valuable.

Photo Credit: Marco Verch

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