A major change to how the cryptocurrency Ether is mined – and how transactions are validated – could reduce its carbon footprint exponentially.
In the pipeline for six years, the move from proof-of-work to proof-of-stake is predicted to make the Ethereum Blockchain network – which is where most NFTs are created – 99.95% less energy-intensive.
Whether other currencies like Bitcoin will follow suit remains to be seen, but if they do, the change will provide a powerful rebuttal to one of the most cutting criticisms of crypto – and break down one more barrier to investment.
Cryptocurrency’s Green Problem
Cryptocurrency is any digital currency that is secured using cryptography, meaning it can’t be spent more than once, counterfeited, or otherwise abused.
Unlike traditional currencies, cryptocurrencies have no centralized issuing (such as a money-printing central bank) and don’t require financial institutions to verify transactions.
Rather than notes or credit card transactions, cryptocurrency payments are effectively entries into an online database called a public ledger, where all transactions are recorded. This public ledger is the Blockchain, which is a chained-together record of all Crypto transactions.
There are two ways to obtain a unit of cryptocurrency – either you can receive it as payment from someone else (and keep it in your digital wallet until it's ready to be sold elsewhere), or you can mine fresh units of cryptocurrencies.
Crypto-mining is the energy-intensive part of the cryptocurrency process that has been the target of much criticism over the past few years.
To mine Crypto, you need to solve a long, complex mathematical problem that requires significant computing power to answer – the first computer to answer it then receives a new block of Ether, BitCoin, or other cryptocurrencies. The whole process of finding the answer – and the answer itself – is your “Proof-of-Work”.
Proof-of-Work makes mining for cryptocurrency quite difficult and expensive. This protects cryptocurrencies from fraud, and although it's bad for the environment, it’s essential to the function and security of cryptocurrencies – until now.
Proof-of-Work to Proof-of-Stake: Ethereum’s Bright Idea
Ethereum, the blockchain network the Ether (ETH) currency is tied to, is trying to replace Proof-of-Work with a more environmentally friendly way to verify and validate cryptocurrency transactions – called Proof-of-Stake.
Proof of Stake, as Insider explains, “requires network participants to stake cryptocurrency as collateral in favor of the new block they believe should be added to the chain”.
“In proof of stake the cryptocurrency holders ‘vote' to approve legitimate transactions. As a reward for voting on legitimate transactions, ‘stakers' are paid in newly created cryptocurrency over time” – Garrick Hileman, Blockchain.com Head of Research.
Advantages of Proof-of-Stake over Proof-of-Work include the lower energy costs, fewer hardware requirements (and a subsequent lower barrier to entry) as well as faster transaction speed, less operational expenses, and increasing decentralization.
The Crytpo Revolution Rolls On – Should Your Business Accept it?
In 2020, Deloitte found that 2,300 businesses in the US were accepting Bitcoin as a valid form of payment, including 440 in California. That figure has likely risen since then.
It’s not all small businesses and new-age tech companies getting in on the action, however – that cohort of companies accepting crypto payments includes PayPal, Whole Foods, Starbucks, and Home Depot.
A Pew Research study published in November 2021 found that 16% of Americans have invested in, traded, or used cryptocurrency.
It's really a question of supply and demand – the more people buy digital currencies, the more businesses will accept them. That demographic is probably larger than you think, too – a Pew Research study published in November 2021 found that 16% of Americans have invested in, traded, or used cryptocurrency, so it's a huge market to capitalize on.
What's more, the news that there may be a solution to the energy-intensive nature of current crypto-mining just removes another barrier to mass investment, especially to those who have been heavily critical of its environmental impact.
If you own or manage a business and are looking into diversifying your payment options, making space for digital currencies may prove quite profitable. Some POS systems are already capable of accepting cryptocurrency, meaning that it's easier than ever for companies to charge in Bitcoin, Ethereum or other currencies.
Interested in everything crypto? Check out our guide to the top blockchain statistics of 2023 to stay informed of the latest trends.