Rishi Sunak Plans to Create a Government-backed NFT But How Does That Affect The Environment?
UK Chancellor Rishi Sunak has asked the Royal Mint, the producer of the British coin, to create the UK Government’s first ever non-fungible token (NFT).
This news has come in only days after the government also announced scrapping the VAT on solar panels and heat pumps.
The NFT is part of a larger plan to bring cryptocurrency into the mainstream and will be ready later this year.
But do you know how much of an impact the NFT’s and the crypto industry is making on the environment? We break it down below.
What Is Etherum?
People use Ethereum in order to purchase NFTs. It is a cryptocurrency, which is like a digital currency that doesn’t rely on banks or the government.
Instead they use a mechanism called “proof of work” which is to manage a series of timely ledger of transactions.
Crypto miners are at the centre of this proof of work process and the impact the crypto industry is having on the environment is predominantly down to crypto mining.
What is Crypto Mining?
We have tried to condense crypto mining down to its bare essentials:
You leave your computer on overnight, meanwhile it uses software that works away as if trying to figure out a really complicated puzzle
When your computer has solved a few of these puzzles, a fraction of a bitcoin is then unlocked that you can then trade over the internet or sell for currency like GBP. This is what’s known as proof of work, and it's what gives these currencies their value
This process requires an enormous amount of computing power. The more powerful the computer is, the faster it can figure out these puzzles and produce more currency but this obviously requires more electricity to generate
Crypto Mining Stats
Ethereum uses 113 terawatt-hours per year - the same amount of power consumed by the whole of the Netherlands
One single Ethereum transaction can consume as much power as an average US household uses in more than a week
Effects of Crypto Mining
Ultimately the more computing power used to mine crypto, the higher the demand for electricity. The reason this is bad is because crypto miners don’t necessarily care where their electricity source comes from.
In an ideal situation, crypto mining would come from renewable sources like hydro energy, solar or wind power but the expansion of the crypto industry has often meant that miners will seek out cheap sources of electricity that aren't necessarily renewable.
So while a majority of the world is trying to reduce the amount of electricity being used, or at least ensure that it is being generated sustainably, the crypto industry is putting more pressure on energy grids.
Plus, not only does proof of work use an excessive amount of electricity, it generates electronic waste as well. Computers used for crypto mining often have a short lifespan before becoming obsolete and thrown away.
What’s The Solution?
Instead of using the proof of work process, Ethereum plans to switch entirely to what’s known as proof of stake.
Proof of stake focuses on removing crypto miners and replacing them with crypto validators.
Instead of using excessive amounts of energy to mine cryptocurrency, validators will invest in existing Ether coins. It then becomes like a lottery system. A group of validators are then randomly chosen by an algorithm and awarded newly minted Ether. The more Ether you invest in, the better your chances are of winning this lottery.
The main advantage of this process is that it eradicates the need to use large amounts of energy to solve the incredibly complicated puzzles in crypto mining. By removing this part of the process, it is expected to dramatically reduce the energy usage involved.