The Global Impact of Cryptocurrency Mining

Despite the fact that mining is only one way for verifying cryptocurrency transactions and creating new crypto coins, Bitcoin and Ethereum, two of the most popular cryptocurrencies, rely extensively on crypto mining.

In this article experts Forex Brokers explain the global impact of the industry.

Understanding the energy consumption of crypto mining

Cryptocurrency trading can be conducted through many Forex brokers in the UK. However, crypto mining is a different activity entirely.

In order to calculate how much energy is needed in Bitcoin and cryptocurrency mining, the network's hashrate and the consumption of commercially available mining rigs can be utilized to approximate the figure.

According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin, the most widely-mined cryptocurrency network, used an estimated 85 Terawatt-hours (TWh) of electricity (0.38 percent of global electricity use) and about 218 TWh of energy (0.13 percent of global energy production) at the point of production—more than Belgium and Finland.

Creating new digital currency has an evident environmental impact due to the electricity needed for the mining process. Many forms of cryptocurrency rely on mining, but Bitcoin mining is the most well-known.

However, with the advent of Bitcoin, it has proven increasingly difficult to manufacture new Bitcoins through mining.

There are only 21 million units of currency to be mined, therefore the more units minted, the fewer units there are to mine, and the more processing power it takes to mint new ones.

Because of the artificial scarcity and the 6.25 Bitcoin incentive for mining a new block at the time of this writing, more individuals are consuming a greater amount of electricity to mine the few coins that remain.

The estimated carbon footprint generated by the power plants supplying such energy is a source of environmental concern. Just one single Bitcoin transaction uses 2,292.5kilowatt hours of electricity, enough to run an average UK family for 78 days—and that's just mining.

It is projected that Ethereum, the second-largest cryptocurrency network, consumes 62.77 Terawatt-hours of electricity each year, which is equal to Switzerland's power consumption.

Using 163 kilowatt-hours of electricity for an Ethereum transaction is the same amount of power that an average UK family uses in 5.51 days.

The cause of crypto mining’s high impact.

Proof of work (PoW) systems like Bitcoin and Ethereum require people to solve a variety of complex equations to mine new coins and add new blocks of information to a digital currency's blockchain, a process known as "mining."

Because everyone on the network is vying for the monetary prize, the person with the highest processing power has the best chance of winning. Thus, larger mining rigs (or even networks of mining rigs) are being constructed to process equations more quickly.

Energy consumption increases as the mining network grows in size, which means that mining new currencies requires ever more power.

An additional factor influencing the volume of bitcoin mining operations is the cost and availability of electricity. Mining operations can be more efficient and profitable if they are concentrated in one location where electricity costs are lower.

Solutions to the impact of crypto mining

The proof-of-stake consensus method has been implemented by Ethereum developers, however it is still in the testing phase.

Proof-of-stake is an alternative approach which doesn't require a lot of processing power to validate cryptocurrency transactions and generate new coins.

When a validator agrees not to trade or sell any of their bitcoin, they are given the ability to validate transactions and administer the crypto network as a result.

Some other techniques of validation, such as proof of history, proof of time, proof of burn, and proof of capacity, are also in development.

Unlike the Ethereum community, the Bitcoin community has no plans to phase out the proof-of-work method. Because Bitcoin is the most popular cryptocurrency, mining is expected to continue for a long time.