Four green cryptocurrencies to watch
Regulators, investors and the public are increasingly worried about the carbon footprint left by crypto mining activities. Searches for green cryptocurrencies have surged in the past few months. Among the most notable developments was Elon Musk’s decision to stop accepting bitcoin as a means of payment for his Tesla vehicles and a report from the Cambridge Centre for Alternative Finance, which produces the Cambridge Bitcoin Electricity Consumption Index.
The process of validating a transaction on the bitcoin blockchain is done by proof-of-work (PoW), a consensus protocol that requires users to solve a particular mathematical formula to keep the blockchain secure and up-to-date. Bitcoin mining – the process by which a bitcoin is awarded to a computer that solves a complex series of algorithms – is energy intensive. Sophisticated mining machines use huge amounts of energy. Analysis by Cambridge University suggests Bitcoin uses more electricity annually than Argentina and could power all kettles used to boil water in the United Kingdom for 15 years.
A new protocol called proof-of-stake (PoS) has emerged in response to this growing concern. With PoS, the network’s integrity is maintained by multiple holders, also known as validators, who stake a certain number of their tokens to be able to mine the cryptocurrency. PoS-based crypto tokens can be considered green crypto due to the lower energy consumption required to keep the network protected. Below some examples of coins powered by a PoS protocol and considered environmentally-friendly will be discussed.
Ethereum (ETH) is the second largest cryptocurrency by market capitalisation. It began in 2013, when blockchain’s whitepaer was published by Vitalik Buterin, a 27-year old programmer from Russia. He developed the original code for what’s now one of the most important infrastructures of the DeFi ecosystem. The Ethereum network's reliance on the PoW protocol will soon change with the Ethereum 2.0 update, after which the network will fully migrate to a PoS model.
With Ethereum already proving its real-life use as a home to 3,000 decentralised applications, according to State of the dApps, this cryptocurrency has a promising future. It will join the group of sustainable cryptocurrencies relatively soon.
Polkadot (DOT) was launched by one of Ethereum's co-creators, Dr. Gavin Wood. He developed many of the algorithms and coding used to power smart contracts on the ethereum network. Formally launched in 2017 by Wood and other programmers, Polkadot seeks to fill the voids that the Ethereum network hasn’t been able to by allowing the blockchain to scale through the introduction of parachains.
Parachains simplify the number of transactions that nodes need to validate, which reduces congestion within the network – something that many ethereum supporters have complained about amid increasing levels of network usage and high gas fees resulting from the launch of dApps.
In only a few years, Polkadot has grown to become the ninth largest token by market capitalisation, according to CoinMarketCap, as of 29 June 2021.
The Cardano (ADA) network is a PoS-powered blockchain that seeks to become the next Ethereum. It claims to function in a more scalable and sustainable way than its predecessor. The market appears to agree. Cardano has jumped to become the fifth largest token by market capitalisation, according to CoinMarketCap, as of 29 June 2021. Its developer, Charles Hoskinson, believes that its infrastructure has the power to revolutionise trade by introducing a robust network that businesses can use for ID-verification and traceability purposes.
Cardano runs on a protocol called Ouroboros, which claims to be the first peer-reviewed PoS protocol. According to Cardano’s creators, Ouroboros “solves the greatest challenge faced by existing blockchains: the need for more and more energy to achieve consensus”.
Stellar Lumens (XLM)
Stellar is a PoS-powered network that supports the exchange of foreign currencies and tokenised assets through the blockchain. Stellar aims to simplify what has been for centuries a complicated procedure by using the blockchain to guarantee the transparency, accuracy and safety of transactions made when exchanging one currency for another. Other assets can also be exchanged through Stellar, including crypto tokens and off-chain assets such as gold, silver and other commodities. Stellar wants to power the blockchain-based payments ecosystem by providing the infrastructure for decentralised applications to be developed based on the needs of individuals worldwide.
Stellar’s token, XLM, has grown to become the 20th largest cryptocurrencies by market capitalisation, according to CoinMarketCap, as of 29 June 2021. The future of this project looks promising if more institutions adopt its network to power their forex systems.