The proof-of-work (PoW) consensus mechanism of Bitcoin requires an estimated 136.38TWh of electricity per year. That's more than Argentina, UAE, or The Netherlands. Add 37 kilotons of e-waste per year to the equation, and we have an environmental disaster on our hands. And switching to a smaller cryptocurrency might not solve the problem since the energy costs could rise with the price of any PoW system.
Luckily, some cryptocurrencies use other, less energy-intensive validation mechanisms like proof-of-stake (PoS). Some of these networks were designed from the ground up to facilitate greener financial transactions than both traditional banking and PoW cryptos like Bitcoin and Ethereum. This roundup will look at five proven or promising eco-friendly cryptocurrencies you should watch.
Stellar (CLM)
Stellar's token, Lumens, is highly efficient and costs a fraction of a cent to trade. Its short authentication cycle comes from Stellar's SCP, a unique consensus protocol that requires very little energy. As a result, you can use Stellar to exchange almost any currency, and many have used it to invest in renewables.
Tron (TRX)
Tron is a Singapore-based non-profit public blockchain. It was designed as a P2P platform for trading apps, a process that consumes a tiny fraction of the energy required for PoW validation. In addition, Tronix, the Tron network's tokens, were pre-mined, which means they are already in existence and need no further electricity to produce. As a result, Tron is becoming popular with developers of decentralized gaming platforms.
Avalanche (AVAX)
Avalanche is a scalable and decentralized network that runs three chains: P-Chain to manage validation, C-Chain for smart contracts, and X-Chain for exchanging and managing digital assets. The network runs on PoS validation, so it uses 0.0005% of the energy required for BitCoin. Therefore, Avalanche is becoming more popular with Decentralized Finance (DeFi) projects, NFT developers, and gaming platform developers.
Tezos (XTZ)
Tezos was one of the first PoS networks to offer smart contracts. It has improved its efficiency even more over the past three years and is scalable, self-upgradeable, and secure. Its high stability allows users to innovate without sacrificing sustainability, and several aerospace, nuclear, and semiconductor industry players have used Tezos. Furthermore, French banking giant Société Générale has committed to using it. As a result, the network has garnered a lot of trust and boasts a lower carbon footprint than many competitors.
Algorand (ALGO)
Algorand debuted in 2019 as a non-profit. It operates on a PoS mechanism and is designed from the ground up to be eco-friendly. Algorand was co-founded by Silvio Micali, a Turing Award-winning M.I.T. professor, which has given it a credibility boost for such a new network. As of 2021, Algorand claims to be 100% carbon neutral. In addition, Algorand has partnered with ClimateTrade to notarize its blockchain emissions in a push to become carbon negative. This agreement will make it possible to calculate carbon credits that Algorand can then offset.
There Are Promising Networks, But We Have a Long Road Ahead
Bitcoin has a global market cap of just under 43%. With such a high percentage of the world's cryptocurrency consuming absurd amounts of energy, and many smaller networks operating with a similar PoW system, we have a great deal of work ahead to make crypto eco-friendly.
However, many new entrants to blockchain have taken stock of the industry and are trying to make a difference. Some rely on high-efficiency mining, while others use different consensus mechanisms to avoid excess emissions. Our above roundup suggests a mix of proven and promising networks to consider.
Business Takeaways
- Before choosing a network, learn what you can about its consensus mechanism. Is it proof-of-work or proof-of-stake? PoW networks like Bitcoin and many others rely on computer mining, a massive energy expenditure. Genuine PoS networks require a small fraction of the electricity.
- Lower value crypto may have a higher value for eco-friendly companies. Since higher value cryptocurrencies (like BitCoin) require more computing power to validate, they use more energy. If you need to rely on a PoW network, find one that prioritizes efficiency and has a lower value – it's better for the environment.
- Follow success. Every industry is different. If there is a network that seems popular with businesses in your sector, it may be worth considering. For example, Tezos has gained enough trust to woo megabanks, and Tron is a hit with game developers.
