How to sustainably invest in the cryptocurrency market

Bitcoin is having a damaging effect on our environment. This is due to a process called bitcoin mining, which creates new bitcoins and maintains and develops the blockchain ledger. Bitcoin mining uses an extraordinary amount of computer processing power and emits tons of carbon dioxide into our environment every year.

Despite this, there are some benefits to the digital currency and the technology that enables it to run. This includes facilitating more transparent and efficient supply chain management and empowering those left unbanked to gain access to capital. Moreover, cryptocurrencies have become a necessity in maintaining a diversified and profitable investment portfolio.

When I worked in the industry in 2017, cryptocurrencies and blockchain technology weren’t widely adopted. In the years following bitcoin’s founding, the only material use case for the currency was to conduct illicit business activities, allowing criminals to go undetected by the government, and the industry struggled to part with that stigma ever since. Even as blockchain technology showcased promise back in 2017, many still lauded the industry as corrupt and laced with dubious and criminal activities. That same year Jamie Dimon himself called bitcoin ‘a fraud.’

But today, those who aren’t at least learning about the technology will find themselves struggling to stay ahead in both the business and investor community. For example, in the years following Dimon’s comments, J.P. Morgan has invested in everything from a bitcoin fund to their own digital currency, which it launched in 2020. And major companies like UBS, PayPal, and Square have remained competitive by allocating capital and resources to the cryptocurrency market. Further, the use case for digital currencies is being realized with Tesla accepting bitcoin as payment for vehicle purchases up until last week. This has led to an incredible runup in the price of cryptocurrencies – in the past year bitcoin alone has risen 380%.

Businesses and individuals are beginning to wake up to the financial gain, innovation, and efficiency cryptocurrencies and blockchain technology provide. However, we cannot turn a blind eye to the devastating impact the sector is having on our environment. So, if you want to begin investing in cryptocurrencies but are concerned about the environmental impact of bitcoin, I am going to give you 3 alternative digital currencies that could help bridge this gap:  

Cardano (ADA)

Cardano, which is a public blockchain, was founded in 2015 by Ethereum co-founder Charles Hoskinson. Today, Cardano’s cryptocurrency, Ada, is one of the largest cryptocurrencies in operation.

According to Hoskinson, Cardano uses just 6 gigawatt-hours of energy annually, compared to bitcoin’s 115.85 terawatt-hours of energy use. This is due to Cardano’s application of a Proof of Stake (PoS) consensus compared to bitcoin’s Proof of Work (PoW) consensus. In a PoW model, miners compete to add new blocks of currency transactions to the ledger. They do this by using computers to solve complex mathematical puzzles. In the end, the first one to solve the equation is rewarded in bitcoin. The energy it takes to solve these puzzles is enormous, requiring computers to run all day, and the difficulty in solving each equation is getting increasingly intricate, eating up even more energy and electricity.

In a Proof of Stake consensus, instead of competing for digital currencies by solving complex mathematical puzzles, the one who adds the new block is chosen based on how much currency they hold. Because there is no competition involved, a Proof of Stake model only needs a computer to run for milliseconds at a time, reducing the amount of energy needed to add blocks to the blockchain. While not carbon neutral, it is much more energy-efficient than cryptocurrencies that use a Proof of Work consensus model.

Chia (XCH)

Founded in 2017 by BitTorrent founder Bram Cohen, Chia uses a model coined Proof of Space and Time (PoST). According to a press release, it was created to make “mining accessible to everyone” and “significantly less damaging to the environment.”

Proof of Space and Time is a first of its kind consensus protocol that is an energy-efficient take on Proof of Work. While Proof of Work requires a computer to solve complex calculations, Proof of Space and Time takes the unused storage space on a computer to farm the currency and develop the ledger.

By utilizing the energy-efficient resource of drive space, it could greatly reduce the energy use that Proof of Work typically incurs and make mining more sustainable. Chia’s blockchain also allows miners to validate transactions without single-use hardware.

Nano (NANO)

Nano, a peer-to-peer digital currency, was founded in 2015 and is lauded as a cleaner currency than bitcoin. Formerly known as RaiBlocks, Nano is built on a block-lattice, meaning that every account has its own blockchain. This is different from bitcoin’s, and nearly every other currencies, single blockchain.

To run the technology, Nano uses a “lighter” Proof of Work consensus, which doesn’t involve mining. This currency also doesn’t require heavy-duty mining rigs and top-end GPUs. Through their “lighter” Proof of Work model, the Nano network elects their own representatives to work to authenticate blocks on the chain and it only takes seconds to process a transaction.

In summary.

There are many digital currencies on the market, with more emerging every day, so it can be confusing to sort through all of the noise. If you are interested in investing in cryptocurrencies, the best place to start is to take the time to understand the landscape and narrow in on your investment goals – whether that be having a portfolio that aligns to sustainability or one that is heavily investing in financial inclusion. From there, you can begin your investment journey in the cryptocurrency market.

I hope this article was a helpful start.  

Note: I am not a financial advisor, always do your own research before you invest in anything.