Cryptocurrency is notorious for its excessive use of electricity. However, since January, figures have shown a declining trend. According to an analysis from BanklessTimes.com, the global annualized electricity usage for crypto-assets has decreased by 17%.
Speaking on the data, Jonathan Merry, CEO of BanklessTimes, said, “The key drivers of electricity usage in cryptocurrency mining are the underlying asset price and the miners’ efficiency. More people want to mine when prices go up, driving up electricity usage. When prices go down, usage falls off.”
He added that “the most significant recent event affecting electricity usage has been the shift by Ethereum miners from proof-of-work to proof-of-stake.” He says this has resulted in a reduction in Ethereum’s electricity consumption.
Ether’s shift to proof-of-stake
Bitcoin and Ethereum have used Proof-of-work as a consensus mechanism to mine and verify crypto assets. However, Ethereum is gradually moving away from this process by employing the Proof-of-stake consensus algorithm.
Under the proof-of-work system, miners use their computational power to validate transactions and add them to the blockchain. They are then rewarded with crypto tokens for their efforts. The more computational power a miner has, the more chances they have of validating a block.
The problem with this system is that it requires a lot of electricity to run the computers that validate the transactions. Moving to proof-of-stake will help reduce Ethereum’s electricity consumption because it will no longer require miners to use powerful computers to validate transactions. Instead, they will only need to stake their crypto tokens to participate in the validation process.
The reduced electricity consumption will positively impact the environment since crypto mining is responsible for a large carbon footprint.
Despite the reduced electricity usage, it’s still early days for cryptocurrency. The industry is growing, and new use cases are being found for blockchain technology.
One of the most promising areas is DeFi (decentralized finance). This is where crypto assets are used to provide financial services that central institutions like banks traditionally provide.
The TVL of DeFi protocols has increased significantly in recent years. The combined value was $630 million at the start of 2020, with MakerDAO controlling almost half of it. MakerDAO’s total value is now over $10 billion. This is a testament to the growing interest in this area.
As the industry matures, we expect to see more innovative use cases for cryptocurrency and blockchain technology. This will help reduce the environmental impact of crypto mining and make it more sustainable in the long term.