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Crypto mining is the process employed by Bitcoin and several other cryptocurrency networks to verify new transactions and create and release new bitcoin into circulation. The mining process itself involves specialized hardware and software to generate a cryptographic number that matches or falls below that determined by Bitcoin’s difficulty algorithm. The first miner to generate this number correctly and, therefore, verify the transaction is rewarded with bitcoin. This reward system ensures the mining process remains competitive and incentivizes miners to participate, as their goal is to secure the chance to register transactions on the blockchain and earn bitcoin. Let’s explore a bit further.
Who are crypto miners?
In the early days of crypto and Bitcoin, crypto miners were individuals —anyone with a decent home computer could set themselves up to mine crypto. However, as the network grew and mining became increasingly difficult, the process became much more computationally demanding. Today, more often than not, crypto miners are specialized companies that use hugely powerful computers to solve the complex mathematical problems required to verify and record transactions on the blockchain. These large-scale operations invest heavily in hardware and electricity. But, taking Bitcoin as an example, as the value of each coin has increased, so does the incentive and reward per transaction, making the investment worthwhile.
Why is crypto mining controversial?
Crypto mining has become more controversial in recent years following its growth due to the massive energy consumption required and the environmental impact. Bitcoin mining, in particular, needs vast amounts of electricity to power the specialized computers used to verify transactions, often straining national energy grids and diverting resources from essential needs such as public services and renewable energy initiatives.
This has led many governments, such as China, to limit or ban crypto mining altogether to protect energy supplies and meet climate goals —at least eight countries have placed outright bans on crypto mining as of April 2024. Other areas of controversy surrounding crypto mining, its sustainability, and ethics include limited job creation and economic risk.
Can crypto mining be greener?
Despite the colossal amount of electricity needed to power crypto mining computers, it is possible to make the process greener by introducing various initiatives aimed at reducing its environmental impact. Many companies and stakeholders in the industry have recognized the need for greater sustainability plans, leading to efforts such as the Crypto Climate Accord, which aims for 100% renewable energy-powered blockchains by 2025 and net-zero emissions by 2030.
New technologies, like energy-efficient cooling systems and heat recycling, are also helping to reduce the energy required for mining. What’s more, protocols are also shifting to more efficient Proof of Stake (PoS) mechanisms, such as Ethereum, as opposed to more energy-intensive processes, such as Proof of Work (PoW), which dramatically cuts down on energy consumption and promotes a more sustainable future for crypto mining.
Proof of Stake, an alternative to crypto mining
As mentioned above, Proof of Stake (PoS) is an energy-efficient alternative to more traditional crypto mining and presents a more sustainable alternative to validating blockchain transactions. Instead of relying on computational power, PoS allows participants, known as validators, to lock up or “stake” their crypto assets in exchange for a chance to validate new transactions.
Validators are chosen based on the size of their stake, and those who verify transactions correctly are rewarded with new crypto. However, incorrect validations can result in penalties, such as losing a portion of their staked crypto. PoS requires significantly less energy than Proof of Work (PoW) and promotes greater scalability, making it an increasingly popular alternative consensus mechanism in the crypto space. Some of the most popular coins using proof of stake include Ethereum (ETH), Cardano (ADA), Tron (TRX), EOS (EOS), Cosmos (ATOM), and Tezos (XTC).
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