What Is the Most Energy-Efficient Cryptocurrency?

Shannon Flynn

The proof-of-work (PoW) blockchain is a great way to build trust with third parties, but it does require a lot of energy to work at scale. This is part of why global Bitcoin mining and transactions are currently using around the same amount of energy as a country like Argentina.

Growing interest in crypto and new awareness of the potential environmental impact the blockchain can cause has developers looking for new ways to make the technology more efficient. The aim is to preserve the underlying principles while cutting down on energy use.

Now, there is a growing number of energy-efficient crypto options. For environmentally minded crypto investors, these new coins could provide an alternative to more conventional cryptocurrencies.

Greater Efficiency With Proof-of-Stake Blockchain: Cardano (ADA)

While proof-of-work blockchains can consume a lot of energy, they’re not the only type that’s possible. A growing number of coins are being built on proof-of-stake blockchains, which can be much more energy efficient.

How does proof-of-stake work, and why is it more efficient than proof-of-work?

With proof-of-work, verification requires the decentralized efforts of many computers from all over the world. This process is by nature energy-intensive, as it requires machines to solve highly complex mathematical equations.

Proof-of-stake works slightly differently. Instead of relying on many decentralized computers, it instead relies on money, locked away in deposits, called stakes.

When a new block needs to be verified, the proof-of-stake blockchain turns to a node of computers, choosing one based on how much money it has staked and other factors that help preserve fairness. This approach simplifies the verification process, reducing the amount of energy necessary to operate the blockchain.

The approach is already gaining popularity. Cardano, the blockchain that currently has the fourth-largest market capitalization of any cryptocurrency, uses proof-of-stake in place of proof-of-work.

For those unwilling to make the jump to an untested cryptocurrency, there’s still good news. Ethereum, the second-most popular cryptocurrency after Bitcoin, is built on a proof-of-work blockchain. The developers are currently working on Ethereum 2.0, however, which will use proof-of-stake instead.

This change could be significant for businesses and individuals who want to use asset management tools like smart contracts but are reluctant due to the associated environmental impacts.

Crypto Powered by Sustainability: SolarCoin (SLR) and BitGreen (BTG)

Some emerging coins are generated directly from sustainable action — like the production of renewable energy.

The SolarCoin blockchain generates one coin for every megawatt-hour produced by solar power technology. Right now, these megawatt-hours are tracked and verified by the community. However, the developers behind the coin hope that, in the future, the process could be automated. The plan is for networked solar arrays to log megawatt-hours as they are produced.

BitGreen, set to launch in fall 2021, uses a similar but broader approach. Instead of solar power, BTG is generated by several different “eco-friendly” actions — like carpooling, volunteering and participating in green initiatives. Use of the coin would reward you for prioritizing sustainability in your own life and potentially encourage others to do the same.

Storage Instead of Processing Power: Chia (XCH)

One new cryptocurrency has found a way to avoid processing power altogether — helping to significantly reduce the energy needed to support its blockchain.

Chia uses a novel approach called proof-of-storage or proof-of-space. Instead of allocating processing power to solve a challenge from the blockchain, users allocate storage space. This approach reduces the energy consumption necessary to verify new blocks.

Cautious investors may want to wait a little longer before investing in Chia, however. There’s some evidence that the proof-of-storage blockchain is extremely tough on hard drives and may be contributing to very early failures. If this is the case, the carbon cost of continuously manufacturing replacements may outweigh energy savings.

New Cryptocurrencies Offer More Efficient Alternatives

Conventional proof-of-work blockchains require a significant amount of energy, and as interest in crypto grows, those requirements will only increase. Alternatives to proof-of-work help reduce the potential environmental impact that crypto will have, making the rapid growth of the crypto space much more sustainable.