Recent cryptocurrency dips have given energy-efficiency and accessibility solutions a much-needed boost.
Earlier this year, U.S. Treasury Secretary Janet Yellen expressed concern over Bitcoin’s “extremely inefficient way of conducting transactions,” describing the amount of energy consumed with each transaction as “staggering.” Elon Musk justified his recent reversal on Tesla’s acceptance of Bitcoin by emphasizing the “rapidly increasing use of fossil fuels for bitcoin mining.”
Just like that, after months of steady growth, nearly every cryptocurrency was sent tumbling.
Like a row of dominoes, this month’s Bitcoin drop-off shook up the wider cryptocurrency market, instilling fears about the longevity of nearly every cryptocurrency and prompting serious reflections on the future of this digital market. Likely spurred by comments from Yellen and Musk, environmental and energy concerns are now at the forefront of these discussions.
The reality of cryptocurrency’s environmental impact
Let’s examine the reality of cryptocurrency energy usage beginning with Bitcoin, the first and most popular cryptocurrency. Bitcoin uses roughly 130 terawatts of energy every hour according to the University of Cambridge, roughly comparable to the energy use of the entire nation of Argentina. Why so high? It’s simple: Mining Bitcoin and processing transactions — both essential processes to its existence — require immense computational power.
Several other cryptocurrencies suffer from the same existential energy dilemma although some, such as Ethereum, are finding new ways to reduce their carbon footprint. In fact, the pressure is really on for Ethereum to find a scalable solution to this problem as emerging competitors, such as Cardano and Polkadot, race to beat Ethereum co-founder Vitalik Buterin at his own game.
Until energy consumption is majorly reduced, however, many of these cryptocurrencies will continue charging fees relative to the energy needed to process transactions. Fees on the Ethereum Network, in particular, can swing from $20 to $90 in the span of just a few days. In addition to potential environmental damage, these fees pose a wealth of other problems, from discouraging trades to subsequently increasing price volatility.
For cryptocurrencies to become as widely used as fiat currency, they must reduce their environmental impact. With many nations and industries switching to sustainable methods of production and commerce, cryptocurrencies will need to put their best foot forward to stay in lock step with the rest of the world.
The race to scale cryptocurrency is well under way
Considering the intrinsic nature of these energy-gobbling processes, is there a way for cryptocurrencies to survive in a more sustainable world? The short answer is yes, but it will require a tremendous transformation across the digital marketplace.
One of the core components of cryptocurrencies, which consequently drives their energy consumption through the roof, is their use of blockchain technology. Blockchains are the backbone of countless cryptocurrencies, providing time-stamped records of each transaction across a decentralized, peer-to-peer network. While this technology is critically important for maintaining stability and traceability, cryptocurrencies can capitalize on the current dip to creatively reduce their reliance on older blockchain technology without sacrificing fundamentals.
One of the ways cryptocurrencies are doing this is by shifting to more energy-efficient blockchains where the transactions themselves take place. PumaPay, a cryptocurrency payment solution enabling merchants to accept cryptocurrency payments and receive them in any currency they so choose — including fiat — recently announced it would be making the switch from the Ethereum Network to the Binance Smart Chain (BSC). When analyzing Ethereum’s energy usage and subsequent price hikes, the reasons for the switch become clear: Why would any consumer use cryptocurrency to pay for a website subscription, for example, if the gas fee might cost more than the subscription itself?
In contrast to BSC, Ethereum consumes massive amounts of energy at 88.09 kWh per transaction, equivalent to about three days of energy consumption by the average U.S. household. With an average of 1.46 million transactions pushing the processing limits of the Ethereum blockchain every day, cryptocurrencies on this blockchain face significant scalability issues. Congestion on this network is often passed onto the trader, with gas fees reaching all-time highs during Ethereum’s run-up earlier this year. Recognizing this issue, Ethereum has geared up to completely renovate its technology.
Just as PumaPay has done, cryptocurrency companies that move their operations to alternative networks like the BSC enjoy faster processing, greater liquidity pools and enhanced flexibility, which prevent congestion and subsequent fees. Fewer fees means greater accessibility for traders, thus increasing volume and stability. Of course, Ethereum isn’t going away, and third-party efforts are already underway to solve its scalability issue. Polygon (MATIC) is one of the networks leading the charge, and its updard price action has shown there is a high demand for Ethereum scaling solutions because projects still want to build on the OG DeFi network.
After sustainability, accessibility
For cryptocurrencies to survive the test of time, environmental sustainability isn’t enough — accessibility must be equally prioritized. The recent bull run was largely spurred by a wave of retail investors, followed by institutional investors. To sustain this growth and attract new investors, the cryptocurrency market must be approachable and straightforward. Lower energy fees are a start, but there is much more work to be done to simplify the process.
Where there are UX problems, there are companies — and many of them — that aim to offer solutions. Banxa is a payment-service provider (PSP) that works with crypto-asset companies to improve the purchasing experience for traders. By providing a bridge between fiat currencies and cryptocurrency assets, Banxa enables direct purchases with a wide range of payment methods, shedding light on the potential future of the cryptocurrency market, where millions will be able to buy and sell cryptocurrency assets with the swipe of a credit card.
A reality in which cryptocurrencies are exchanged and managed as easily as the cash in your wallet becomes increasingly possible with every push toward sustainability and accessibility. As more companies emphasize energy efficiency and a positive UX, a wave of advancements is sure to sweep the wider cryptocurrency ecosystem. Despite recent dips across the market, the future of cryptocurrency looks bright.
This article was originally published in Entrepreneur Magazine.