Relatively recently, bitcoin skyrocketed on the news about the readiness of Tesla (NASDAQ:TSLA) to start accepting the leading cryptocurrency as a payment tool. However, then Elon Musk refused this step, considering that bitcoin mining contradicts Tesla’s mission as part of the energy transition.
Bitcoin mining requires a lot of computing power, which makes the process very energy-intensive.
Meanwhile, 2021 turned out to be a good year for BTC owners.
BTC/USD – monthly timeframe BTC/USD – monthly timeframe
On December 28, volatile bitcoin was trading at $48,407.53, which was 67% higher than the end of 2020 level of $28,986.74. At the time of publication of the article, the cost of one token was $ 46,768, which corresponds to an annual increase of 61%.
At the same time, more environmentally friendly cryptocurrencies have shown even greater success in percentage terms, and this trend seems to continue in 2022.
The attractiveness of the protocol of “green” currencies
To understand the difference in the carbon footprint of old and new cryptocurrencies, it is necessary to understand the protocols of their networks, which determine the way transactions are verified and new blocks are calculated.
Bitcoin, Ethereum 1.0 and many other altcoins are built on the basis of proof-of-work (PoW) networks. It is the use of this mechanism, which requires constantly growing computing power, that makes mining so energy-intensive.
This approach draws miners from all over the world into a virtual race that requires solving a mathematical problem. The winner gets the opportunity to update the blockchain by adding a block with the latest confirmed transactions. Tokens are a reward for the work done. PoW leaves a significant carbon footprint because most of the electricity is still produced from fossil fuels (including oil, natural gas and coal).
An alternative approach is “proof of ownership” (PoS), using a network of “validators” who provide part of their digital assets in exchange for the ability to verify new transactions and enable new blocks. PoS rewards validators who provide the greatest contribution over a long period of time.
When it comes to the environment, the proof-of-ownership protocol leaves a much smaller carbon footprint.