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Recent cryptocurrency slumps have given energy efficiency and accessibility solutions the much-needed boost.
Earlier this year, US Treasury Secretary Janet Yellen expressed concern about Bitcoin's "extremely inefficient way of conducting transactions", describing the energy consumption of each transaction as "mind-boggling." Elon Musk justified his recent reversal of 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, almost every cryptocurrency has been shaken.
Like a series of dominoes, the Bitcoin levy this month has rocked the broader cryptocurrency market, sparking fears about the longevity of nearly every cryptocurrency, and sparking serious reflections on the future of this digital market. Probably spurred on by comments from Yellen and Musk, environmental and energy issues are now at the fore of these discussions.
The reality of the environmental impact of cryptocurrency
Let's examine the reality of energy consumption in cryptocurrency, starting with Bitcoin, the first and most popular cryptocurrency. According to the University of Cambridge, Bitcoin uses approximately 130 terawatts of energy per hour, which is roughly the same as the energy consumption of the entire Argentine nation. Why so high It's very simple: mining Bitcoin and processing transactions – both essential processes for its existence – require immense computing power.
Some other cryptocurrencies suffer from the same existential energy dilemma, although some like Ethereum are finding new ways to reduce their carbon footprint. In fact, the pressure is really big on Ethereum to find a scalable solution to this problem as emerging competitors like Cardano and Polkadot try to beat Ethereum co-founder Vitalik Buterin in his own game.
However, until energy consumption is significantly reduced, many of these cryptocurrencies will continue to charge fees in relation to the energy needed to process transactions. In particular, the fees on the Ethereum network can fluctuate from 20 to 90 US dollars within a few days. In addition to potential environmental damage, these charges present a myriad of other issues, from discouraging trading to subsequently increasing price volatility.
In order for cryptocurrencies to be as widespread as fiat currencies, they need to reduce their environmental impact. As many nations and industries switch to sustainable production and trading methods, cryptocurrencies must do their best to keep up with the rest of the world.
Related: Is Bitcoin Really As Bad For The Environment As Some Think?
The race to scale the cryptocurrency is in full swing
Given the nature of these energy guzzling processes, is there a way for cryptocurrencies to survive in a more sustainable world? The short answer is yes, but it will take a huge transformation in the digital marketplace.
One of the core components of cryptocurrencies, which consequently drive their energy consumption through the roof, is the use of blockchain technology. Blockchains are the backbone of countless cryptocurrencies and provide time-stamped records of every transaction on a decentralized peer-to-peer network. While this technology is vital to maintaining stability and traceability, cryptocurrencies can take advantage of the current decline to creatively reduce their reliance on older blockchain technology without compromising the fundamentals.
Cryptocurrencies do this, among other things, by switching to more energy-efficient blockchains in which the transactions themselves take place. PumaPay, a cryptocurrency payment solution that allows merchants to accept and receive cryptocurrency payments in any currency they choose – including fiat – recently announced it is moving from the Ethereum network to the Binance Smart Chain (BSC). When analyzing the energy consumption of Ethereum and the subsequent price increases, the reasons for the switch become clear: why would a consumer use cryptocurrency to pay for a website subscription, for example, when the gas fee may cost more than the subscription itself?
In contrast to BSC, Ethereum consumes enormous amounts of energy with 88.09 kWh per transaction, which corresponds to an energy consumption of an average of three days for an average US household. With an average of 1.46 million transactions exceeding the processing limits of the Ethereum blockchain every day, cryptocurrencies on this blockchain face significant scalability problems. The congestion on this network is often passed on to the trader, with gas fees hitting an all-time high during Ethereum's ramp-up earlier this year. Ethereum has recognized this problem and is preparing to completely overhaul its technology.
Just like PumaPay, cryptocurrency companies that move their operations to alternative networks like the BSC enjoy faster processing, larger pools of liquidity, and improved flexibility, thereby avoiding congestion and subsequent fees. Fewer fees mean better accessibility for traders and thus more volume and stability. Of course, Ethereum is not going to go away, and third-party efforts are already being made to solve the scalability problem. Polygon (MATIC) is one of the leading networks, and its price hike has shown that there is high demand for Ethereum scaling solutions as projects continue to build on the OG DeFi network.
Related: Cryptocurrency Millionaires Diversify Into Ownership. You should be too.
After sustainability accessibility
For cryptocurrencies to withstand the test of time, ecological sustainability is not enough – accessibility must be prioritized equally. The recent uptrend has been largely fueled by a wave of retail investors, followed by institutional investors. To sustain this growth and attract new investors, the cryptocurrency market needs to be accessible and straightforward. Lower energy charges are a start, but there is a lot more that can be done to make the process easier.
Where there are UX problems, there are companies – and many of them – who want to offer solutions. Banxa is a payment service provider (PSP) that works with crypto asset companies to improve the shopping experience for merchants. By providing a bridge between fiat currencies and cryptocurrency assets, Banxa enables direct purchases using a variety of payment methods and sheds light on the potential future of the cryptocurrency market where millions of cryptocurrency assets can buy and sell in one fell swoop from a credit card.
Related topics: How fintech ensures equal access to finance
A reality where cryptocurrencies are exchanged and managed as easily as the money in your wallet becomes increasingly possible with every step towards sustainability and accessibility. As more businesses focus on energy efficiency and positive UX, a wave of advances is sure to hit the broader cryptocurrency ecosystem. Despite the recent slump in the market, the future of cryptocurrency looks promising.