By Ryan Bologna
July 15, 2022
Only Play­ers

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.