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CAPinside2 MIN READING TIME2018-05-22

Different energy consumption in cryptocurrencies

At the turn of the last year, the hype surrounding crypto currencies reached its peak. But some of these currencies now consume a significant portion of the world's electricity. Is this negative trend stopping?

Flagship Bitcoin under criticism

Bitcoin is currently the largest cryptocurrency and has brought public attention to blockchain technology. But Bitcoin is criticized more and more recently, the reason: high power consumption. According to Alex de Vries, a cryptocurrency expert, global energy consumption is now on the order of the whole Czech Republic . De Vries calculates an estimated energy consumption of the crypto-currency Bitcoin on its homepage and also compares it with other payment methods: Thus, a Bitcoin transaction consumes a multiple of electricity compared to the Visa network. With the energy of a single transaction, de Vries says more than 30 US households can be powered for a full day. Even if the man behind these calculations admits that they are estimates, the numbers are so scary that small deviations do not matter.


The trigger: How Bitcoin works

Behind this huge amount of energy is above all one thing: mining. Mining is the process of mining virtual currencies . The network is supported via the PC or laptop by the computer solves small puzzles - this succeeds a participant in the network, creates a new currency unit and the miner is rewarded for it. Anyone who participates in this process must also keep an eye on issues such as power consumption and acquisition costs for graphics cards, and will therefore scrutinize cryptocurrencies as often and permanently as possible in order to remain economical. This background mechanism of Bitcoin and some other cryptocurrencies is the cause of the increasing energy demand, called the acting principle also Proof of Work .


possible alternatives

However, the proof of work method, or PoW for short, is not the only thing that works for cryptocurrencies. For example, XRP, the third largest cryptocurrency, is following a path without mining - the currency units have already been produced in their entirety and no longer need to be consumed by users. Proof of Stake , or PoS for short, is another example of an energy-efficient handling of cryptocurrencies : The energy-intensive mining also drops away, instead of the participants agreeing on which participant may generate the next block of blockchain. This usually depends on the size of the assets or the duration of the coins in the network. Ethereum, the second largest cryptocurrency, plans to move in that direction. Other projects such as NEO or Stratis already use this principle, and variations of this mechanism are already in use, for example in the projects Ark and Lisk - here users need to connect to the power grid for the generation of new blocks no devices at all.

And last but not least, there is still hope for the largest cryptocurrency: if Bitcoin gets its so-called Lightning Network running satisfactorily, the power consumption of the currency will be drastically reduced. This network is jointly developed by the two American Firman Blockstream and Lightning Labs and the French start-up Acinq. In doing so, the blockchain is bypassed and direct payment channels are created between users, the transactions can then be carried out at high speed, and microtransactions would then be possible over a large area. Until then, however, probably some time passes by: In 2015, the first rumors began, according to which the Lightning Network is nearing completion, now three years have passed and the network still has to contend with small growth rates and an excessive error rate in transactions.