Is cryptocurrencies energy inefficient?

Yes, some cryptocurrencies such as bitcoins requires a high amount of energy. However, advancements in technology are beginning to address this concern. A commonly used technique for cryptocurrency mining, called ‘proof of work’ or PoW validation, is an energy inefficient technique. Instead, a highly energy efficient technology called ‘proof of stake’ or PoS is increasingly being used. Ethereum, the world’s second-largest cryptocurrency, is currently transitioning from a PoW to a PoS validation model.

Further, access to cheap electricity is important for miners, as they won’t have any incentive to continue mining if its cost exceeds the profit earned by them through selling bitcoins. Consequently, many cryptocurrency miners use renewable-energy based electricity, as it is generally cheaper than coal-produced electricity. For example, a study by Cambridge University found that over 39% of the total energy consumed by cryptocurrencies including Bitcoin, Ethereum, Bitcoin Cash and others comes from renewable energy This helps to reduce the harmful environment impact of cryptocurrency mining.