In the past five years, the price of a Bitcoin has rocketed from about $1,000 to more than $60,000. That’s great news for newly minted millionaires and billionaires, but it’s a bummer for the environment. The electricity needed to “mine” the coins—effectively deploying vast fleets of computers to solve complex problems—has increased tenfold over the same period, to almost as much as the entire country of Argentina uses.
That power consumption spurred Tesla Inc. Chief Executive Officer Elon Musk to ban car purchases with Bitcoin, and China prohibited mining in part because of the burden it placed on its power grid. “If Bitcoin continues to be seen as carbon-intensive and energy-hungry, it’s a massive risk,” says Kirsteen Harrison, a sustainability strategist at Zumo Financial Services, a cryptocurrency wallet company in the U.K.
In response, some miners have located their computers in places such as Iceland or Sweden, with abundant geothermal or hydro power, and others have bought carbon credits to offset their emissions. But with every kilowatt of greener energy needed for cooking food, heating homes, or moving people and goods, there’s an increasingly urgent sense that cryptocurrencies should find a better way to do business. “A limited amount of clean energy will be built in the coming years, and that should go toward cleaning up existing energy demands,” says Ben Hertz-Shargel of energy consultant Wood Mackenzie.
Estimated Daily Power Demand of the Bitcoin Network
In gigawatts
Data: Cambridge Centre for Alternative Finance
That’s spurred a growing number of entrepreneurs to explore other methods of ensuring the security of digital coins. Most early cryptocurrencies are based on what’s called proof of work, which is all those calculations the miners’ computers do. The goal is to be the first to guess the answer to a complex problem, which gives the miner the right to record transactions in the system’s blockchain—the digital ledger that proves who owns which coins and, crucially, doles out new ones. While many home computers were up to the task a decade ago, mining today requires sophisticated machines that gobble up vast amounts of power. And consumption typically climbs as the price of coins rises, because the complexity of the problems increases as more miners jump in.
The most popular alternative is called proof of stake, where various parties pledge their coins to become so-called validators. These people get new coins in exchange for checking the legitimacy of transactions and deciding which ones will be processed first. There’s no need for special equipment; the competition isn’t about quickly solving a problem, but rather how much each party is willing to put up as collateral. Advocates say the system is secure because those who approve transactions that turn out to be fraudulent lose the coins they’ve staked. Multiple validators typically vet each batch of transactions, but the bulk of new coins go to just one party, chosen in a sort of lottery in which those who stake more coins get more tickets.
Creating Crypto
Ethereum, the blockchain that underpins the world’s No. 2 cryptocurrency, next year plans to migrate from proof of work to proof of stake, saying the move will reduce its energy use by 99.95%. A test version called the Beacon Chain has been running alongside Ethereum’s established proof of work system for almost a year, with more than 250,000 validators staking some $38 billion worth of Ether, according to tracker Etherscan. The currency’s original network “is 6-year-old technology, not designed for the usage level and security needs of 2021—and certainly not of 2025 or 2030,” says Aaron Brown, a crypto investor who writes for Bloomberg Opinion.
Scores of other cryptocurrencies use models based on this idea. Solana, a coin introduced last year that’s ballooned into the fifth-largest cryptocurrency, has a variant in which transactions are given timestamps to speed up processing. Algorand gives all online users a chance to be randomly and secretly selected to propose and vote on batches of transactions that need confirming, with each party’s influence tied to how many tokens she owns. Tron lets users elect delegates, called super representatives, to validate transactions in six-hour shifts and to receive new coins for their work. And Filecoin uses a related technology in which parties compete to provide bandwidth or digital storage space to the network in exchange for new coins.
Critics say these alternatives may be less secure than proof of work. The computer code underpinning proof of stake is so complex that there’s a greater risk of undetected software bugs, says Chris Bendiksen, a researcher at digital-asset investment manager CoinShares. And such systems are more susceptible to censorship, because once an entity or group acquires more than half the tokens, “there’s no way for them to be unseated as the controlling entity,” he says. “Bugs and vulnerabilities in system-critical infrastructure like monetary systems can be catastrophic.”
Developers of proof of stake systems counter that in proof of work a small number of miners typically control most of the network, opening the door to manipulation. With proof of stake, advocates say, the only way for users to increase their influence is by increasing their stake, making it harder—and more costly—to game the system. Tim Beiko, a computer scientist who coordinates Ethereum developers, says the years his network spent honing its proof of stake technology and the extensive testing it’s undergone demonstrate that these less energy-intensive alternatives can chart a new future for cryptocurrency. Proof of work “doesn’t make sense for most chains,” he says. “And Ethereum is a great proving ground for both smaller and larger chains to follow.”
Read next: Soon You’ll Be Saying, ‘There’s a Blockchain App for That’
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