How Eco-Friendly is Crypto?

Chaotic Finance
3 min readMar 14, 2022


Cryptocurrencies have risen from obscure fringe currencies to mainstream digital assets capable of upending the financial world in the last decade. These currencies have recently become one of the world’s most valuable assets, and it is expected that their use will continue to rise in the future years. However, there are some drawbacks to the rise of cryptocurrencies.

One of the most common concerns about cryptocurrencies is their environmental and climate impact. Elon Musk, for example, stated in March 2021 that his Tesla car company would begin accepting Bitcoin, the world’s largest and most popular cryptocurrency, only to reverse the decision two months later. Environmental concerns were stated as the basis for the modification of plans. Musk went on to say that Tesla would only retake Bitcoin if the cryptocurrency became more environmentally friendly.

Bitcoin’s (BTC) huge carbon footprint has been a source of controversy for years. Many had claimed that the dominant cryptocurrency was consuming as much energy as a medium-sized country each year; even before Elon Musk started, Tesla would cease accepting Bitcoin payments due to environmental concerns.

Due to the complicated mathematical calculations that must be done to create every new Bitcoin, the mining process for Bitcoin is highly energy-intensive. When you think about it on a worldwide scale, the amount of computing power required to deal in cryptocurrency is comparable to that of a medium-sized country.

Because the primary concept of a digital coin is that it has no physical form, they consume a large amount of energy. Mining is the procedure that allows them to exist without a physical form, and it is this process that necessitates the massive processing power that environmentalists are concerned about. The mining process is exceedingly costly — both financially and environmentally — because it requires the use of:

High-powered computers to authenticate transactions; large amounts of electricity and non-renewable energy sources are required to run these complicated algorithms.

Proof of Work Consensus Mechanism

Ethereum blockchain, like Bitcoin, currently uses a Proof-of-Work consensus protocol (PoW). Proof of work is a consensus process that ensures network users, known as miners, generate codes otherwise known as hashes to verify Bitcoin transactions and add the next block to the blockchain. These complicated processes consume a high amount of energy.

Proof of Work systems have a limiting drawback: the high energy they squander, which is harmful to the environment.

Proof of Work to Proof of Stake

Owing to this limiting drawback of the Proof of work consensus algorithm, developers are considering switching to a more environmentally friendly mining approach. This can only be done by adopting another consensus mechanism algorithm other than the existing proof of work model. One of the consensus models that is eco-friendly is the Proof of Stake (PoS) model. In PoS, the network’s nodes pledge “stakes” of tokens for a predetermined length of time in return for a chance to produce the next block of transactions, unlike the mining concept of PoW. The chosen node, known as the “validator,” will get the block rewards in the form of the network’s native cryptocurrency. Due to this simplified process, it uses significantly less electricity and thus, becomes more environmentally friendly.

Final Thoughts

How close are we to making crypto eco-friendly? The simple answer to this is- SOON. Projects such as Polkadot, Cardano, Avalanche, Solana, Tron, EOS, Algorand, and Tezos already employ the alternative consensus algorithm model (Proof of Stake) against the old Proof of Work Model, making crypto eco-friendly. Also, large existing projects such as Ethereum are already considering changing their initial consensus model PoW to PoS to save electricity and make crypto eco-friendly.

With several projects launching on these blockchains that employ PoS, the concerns that crypto generates excessive greenhouse gas emissions that affect our environment will be a thing of the past in a matter of time.

About Chaotic Finance

Chaotic is a community-driven delta one asset protocol on the Kusama network via Moonriver. Chaotic allows its users to get exposure to various synthetic assets by letting them trade long and short positions with up to four times leverage.

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Chaotic Finance

A community-driven delta one asset protocol on Moonriver