FEATURED CONTENT

Cryptocurrency is proving to be bullish, now that there are over 300 million traders all over the world. Bitcoin and other digital currencies evolved from the 2008 financial crisis and have turned into a great financial solution for the masses. Due to their nature, many individuals can enjoy greater security and accessibility to their digital assets.

However, while many praise cryptocurrencies for these benefits, some digital currencies come with one major drawback: their environmental impact. Here’s what you need to know about cryptocurrencies that are harmful to the environment as well as their alternatives.

Traditional Cryptocurrencies and Their Environmental Impact

There are more than 4,000 cryptocurrencies in existence—and they are all made differently. Their creation or mining processes set them apart when it comes to their impact on the environment. Case in point: sustainability researchers from the Aalborg Univesity estimated that the mining process of Bitcoin has an annual carbon footprint of 17.29 metric tons. That’s similar to the carbon footprint of 15,000 vehicles driving from San Francisco to New York.

The culprit is the “proof of work” cryptocurrency mining process, which requires a lot of computer power. Miners have to solve extremely difficult mathematical problems on decentralized computers to add new currency transactions to the ledger and get certain cryptocurrencies as a reward. Since there is a huge demand for digital currencies, more computers have to be utilized to mine “proof of work” cryptocurrencies like Bitcoin, Dogecoin, Litecoin, and Monero.

The Rise of Green Cryptocurrencies

Cryptocurrencies aren’t made the same way, which means it’s also possible for digital assets to be created without the negative environmental impact. Instead of using the proof of work mining process, other cryptocurrencies can be created through the “proof of stake” approach.

A researcher from the Ethereum Foundation states that the proof of stake process uses virtual spaces or nodes to lock assets in a security bond in lieu of using hardware and consuming energy. Through these nodes, a number of digital assets are locked away and verified through a multi-factor algorithm. Once the node passes the process, it is rewarded with more coins. As a result, the proof of stake process uses 99.99% less energy than its traditional counterpart. Moreover, this process is already working since proof of stake cryptocurrencies like Cardano, Polygon, Tezos, Polkadot, and EOS are already on the rise. Meanwhile, the second-largest cryptocurrency, Ethereum, is already working on switching to the greener proof of stake method.

Becoming a Socially Responsible Investor

Indeed, it’s possible to invest in digital assets while helping the environment at the same time. AskMoney’s resources on investing contain numerous guides on how you can become a responsible and successful financial trader. Their article on socially responsible investing (SRI) points out that you can earn profit while investing in companies with great social values. For example, buying stocks from companies that produce clean energy or trading cryptocurrencies with a low environmental impact. This goes to show that it is possible to align both your financial goals and your social values.

The cherry on top is that sustainable investments are as bullish as other assets. Investment research firm Morningstar revealed that these sustainable assets reached more than $51 billion in 2020. The report even discovered that sustainable funds performed better than other funds and indexes. Experts believe that these funds will continue to grow, especially since investors are becoming increasingly aware of their options.

Cryptocurrencies have evolved since the financial crisis and, now, they're evolving to respond to the environmental crisis. These sustainable assets are proof that you can become both financially successful and socially responsible as an investor.

Join our community @FinTechtris for more industry content & insight (includes deep dives & sector analysis).

As a bonus, access our subscriber-only tools (eBooks, guides, case studies) to evaluate bank partnership models, user onboarding, and monetization!

Signup for our weekly newsletter today —>