The Toughest Challenge for Cryptocurrencies

By Debesh Choudhury | TechFuture | 24 Apr 2022


Most of us like cryptocurrencies.

We have to like cryptocurrencies. One reason is that the parent platform offers upvotes on cryptocurrencies. Many other blogging platforms also offer cryptocurrency tips. We are bound to like cryptocurrencies and say, "I love BCH," "BCH is Cash," and so on.

Cryptocurrencies show promise as peer-to-peer electronic cash without recourse to any centralized financial authority.

  • But, the governments are not happy about the decentralized nature of cryptocurrencies. They want to control cryptocurrency earnings and deduct income tax from the citizens' cryptocurrency dealings.

The cryptocurrency domain has been facing regulatory challenges from most national governments worldwide.

  • The government regulations pressurize the whole cryptocurrency fraternity and its stakeholders.

  • The cryptocurrency exchanges, the software providers for cryptocurrency wallets, the big investors, traders, and the vast numbers of cryptocurrency enthusiasts (adopters) around the globe are being threatened by tyrannic governance worldwide..


 

Are governmental regulations the only challenges for cryptos?

Governmental regulations and new special cryptocurrency income tax rules are real challenges. Nobody can deny these backward forces that are continually pushing cryptocurrencies.

Suppose, there are no regulations on cryptocurrencies, and every fiat banks start to accept cryptocurrency deposits.

Is the problem solved?

Most probably not.

  • The biggest challenge for cryptocurrencies is not governmental regulation and taxation. The most crucial challenge lies within the cryptocurrencies themselves.

  • The most formidable challenge of a cryptocurrency is to keep the requirement of electrical energy burning for a single cryptocurrency transaction minimal.

The electrical energy required for completing a cryptocurrency transaction creates huge carbon footprints. The high electrical resources requirement of a cryptocurrency transaction is a proven fact and nobody can deny it.

  • The calculations and estimates might not be very accurate, but the reality is that cryptocurrencies burn a lot of electrical energy.

  • The more the number of users and more transactions, the more electrical energy burns per cryptocurrency transaction will be.

  • The cryptocurrency founder groups should conduct a detailed study of how much electrical energy their cryptocurrency transactions consume.


 

The carbon footprints of cryptocurrencies

The definition of carbon footprints is not difficult to understand.

"carbon footprint, amount of carbon dioxide (CO2) emissions associated with all the activities of a person or other entity (e.g., building, corporation, country, etc.)." -- Encyclopedia Britannica.

The carbon emissions due to cryptographic computation of cryptocurrencies are concerns because they add up to affect the environment of the planet earth. Cryptocurrency transactions are the processes that shake the issues of climate change by their huge electrical power consumption.

Since Bitcoin pervades the domain of cryptocurrencies, the electrical power consumption of Bitcoin is the highest among the cryptocurrencies. All cryptocurrencies add respective carbon footprints depending on their consensus protocols, numbers of users/adopters, and number of annual transactions.

It is to remember that Proof-of-Work (PoW) is the consensus algorithm of Bitcoin. Unfortunately, the PoW consensus consumes an enormous electrical power compared to the other consensus, such as Proof-of-Stake (PoS) which consumes relatively less electrical energy than PoW.

 

 

PoW based cryptocurrencies and their electricity consumption

The research community worldwide has been carrying out deep research studies on the electrical power consumption by cryptographic computation of cryptocurrencies.

A 2018 study on Proof-of-Work (PoW) based cryptocurrencies pointed out that the electrical power consumption of Bitcoin and other top PoW consensus-based cryptocurrencies was on the rise.

The reason is quite simple to understand.

  • All PoW chains rely on computational resource consumption to defend their blockchain network from the suspected attackers.

  • In other words, computational resources are required more to make the blockchain network more secure. Consequently, a less resource-driven blockchain network would automatically become a less secure network!

In 2018, the top five prominent PoW consensus-based cryptocurrencies showed the annual average electrical energy consumption figure in equivalent terms to the electricity consumption of different nations.

  • The Bitcoin network was consuming electrical energy equivalent to Austria.

  • The Bitcoin Cash network was consuming electrical energy equivalent between Moldova and Cambodia.

  • The Ethereum network was consuming electrical energy equivalent between Afghanistan and Macau or more.

  • The Litecoin network was consuming electrical energy equivalent to between Moldova and Cambodia, almost the same as the Bitcoin Cash network.

  • The Monero network was consuming electricity consumption very much close to Haiti's than Seychelles, higher and not less.

A 2021 research study has reviewed the facts regarding the electrical energy consumption of the top PoW consensus-based cryptocurrencies. The review doesn't show any improvement in the electrical energy consumption by PoW consensus-based cryptocurrencies.

A thin positive light shines with the news that there are efforts to power Bitcoin mining using renewable energy sources, such as solar photovoltaics, wind, and sea energies.


 

Closing remarks and some inconvenient questions

  • The tyrannic governmental regulations increase the pressure on the whole cryptocurrency fraternity and all its stakeholders.

  • The further innovations and developments of cryptocurrency technology are getting huge setbacks due to the massive expenditure on legal suits run by the governmental regulatory bodies.

  • The cryptocurrency exchanges also face regular warnings by respective governments for KYC and other regulatory business proceedings.

  • Global citizens have been facing challenges to take payouts on cryptocurrencies to banks. The companies are also penalized for taking crypto payments for online/offline purchases.

The toughest challenge is coming from within the cryptocurrency technology - the electrical energy burning for accomplishing the complex computational tasks for cryptocurrency transactions.

  • Even if (say) the governmental regulations are "amicably withdrawn," the electrical energy requirement for cryptocurrency operation will remain very high. As the number of users increases, the crypto computation will consume more electrical energy.

How the high electrical energy resources requirement of cryptocurrencies will satisfy if the whole world's digital payment loads go for cryptocurrencies?

  • Will the cryptocurrency payment systems be economically viable enough to tackle the whole loads of the vast RTGS (real-time gross settlement) network transactions of the banks, the credit card transactions of VISA, Mastercard, and other credit cards?

Unless the cryptocurrency technology discovers a radically new distributed computing protocol robust enough to perform cryptographic processing of digital currency transactions with minimal consumption of electrical energy per transaction, the cryptocurrencies may not prove as a viable financial instrument to replace traditional financial payment systems.

It doesn't change even if most of you (and I) say, "I love cryptocurrencies," including Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Monero, and new coins.

  • A thin positive hope increases with the news of efforts to power cryptocurrency mining using renewable energy sources, such as solar photovoltaics, wind, and sea wave energies.

  • I shall be the happiest if the electrical energy consumption of cryptocurrency computation can be drastically reduced and it will be able to match the cost of traditional RTGS and credit card transactions.

  • I guess the cryptocurrency developers have been running deep research to find a solution, and things may improve in due course of the research grindings!

So, what is the current status and the future of cryptocurrencies in terms of the consumption of electrical energy per transaction, and annual carbon footprints?


 

 

 

About me

  • I am from Science, Technology, Engineering, and Mathematics (STEM). I have also added "Arts" and "Fine Art" to my interests and made my interests STEAM - Science, Technology, Engineering, Arts, and Mathematics.

  • I develop solutions for password and cybersecurity relevant to cryptocurrencies, blockchain, and other block-less distributed ledgers.

I hope the entire blogging community will strive here and elsewhere.

If you have time, please explore my "Learning Times" and other channels on Odysee-dot-Com and earn crypto coin LBRY Credit or LBC for consuming and creating content.


 

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Cheers! Debesh Choudhury

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Text Copyright © 2022 Debesh Choudhury — All Rights Reserved

Thumbnail Image: Photo by Kanchanara on Unsplash.

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Disclaimer: All texts are mine and original. Any similarity and resemblance to any other content are purely accidental. The article is not advice for life, career, business, or investment. Do your research before adopting any options.

April 24, 2022.

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Debesh Choudhury
Debesh Choudhury

I am a solution architect for Digital Identity, Data Privacy, Password & Cybersecurity, Distributed Ledgers, IoT, a researcher & academician of Electronics, Computer Eng. & IT, an Entrepreneur & Tech Blogger.


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