A big criticism of cryptocurrencies such as Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) is that a huge amount of energy is required to create and maintain them.
The trouble is, blockchain systems require high levels of computing power to crunch all the numbers. And all that calculation leaves a significant carbon footprint.
According to Coinjar, Ethereum annually uses about 110TWh of electricity, which is the same as the entire nation of the Netherlands.
But a big change is coming that will bring this impact down.
Image source: Getty Images
Just get one person to run, not 10
Ethereum currently runs on a proof-of-work protocol.
Balmoral Asset Management director Angus Crennan last month told The Motley Fool how that is extremely inefficient.
"Imagine 10 people starting a race and running all the way to the end of the race, but only one of them is allowed through the gate. So then the other nine runners have to go back to the start, and all that energy and time is wasted."
But the great news is that Ethereum is upgrading to a proof-of-stake network — a project known as ETH 2.0 or The Merge.
"What happens there is that there's a selection process of who's going to do the reconciliations," said Crennan.
"What that means is modern cryptocurrencies like Solana (CRYPTO: SOL) use less energy to do a transaction than it does to do a Google search."
So it will be that Ethereum will dramatically reduce its energy usage once the upgrade takes place.
"One estimate puts Ethereum's post-Merge energy usage on par with that of a small town," Coinjar told its customers.
"Add in scaling technologies such as sharding and it's expected that the network's energy-per-transaction cost could end up somewhere between 0.1% to 0.4% of Visa Inc (NYSE: V)'s."
Bitcoin still using enormous energy
This significant reform from the second biggest crypto leaves the question of what Bitcoin can do.
Bitcoin is still running on a proof-of-work network, which is proving to be brutal on the environment.
According to Bankless Times, mining one Bitcoin emits about 191 tonnes of carbon dioxide. This is the same carbon footprint as 1.6 million Visa transactions.
Digging up gold, in fact, uses 3.5 times less power than creating new Bitcoin.
Yikes.
The situation is even worse now than a year ago because of China's prohibition last year on Bitcoin mining.
Until then, the majority of Bitcoin creation took place in that country, using renewable hydroelectricity resources.
"Early signs suggest that the proportion of renewable energy in the mix may have dropped 30% to 40%."
According to Coinjar, the Bitcoin network now eats up 0.6% of all the electricity in the entire world.
"As with all energy-intensive industries, the problem won't be solved until renewable/low-carbon energy abundance is the global norm," the company told its customers.
"Bitcoin's trade has always been disruption. Energy may be its next target."
