Why you wanna choose for Green cryptocurrency? Recently, cryptocurrencies have been in a bad daylight. The main concerns are the energy consumption, as well as the hype that crypto has brought. Let’s start with the latter. Through the hype, many people have joined the crypto movement. At first, you could consider this a good thing. However, due to the nature of blockchain technology (i.e., decentralized, secure, anonymous), it becomes easy for fraudsters to abuse the system. This is exactly what has happened in lots of cases ranging from pump-and-dump schemes to Ponzi schemes that did not even involve true blockchain technology.
The main concern remains energy
For people investing in (Green) cryptocurrency, one of the key goals was separating fact from fiction and selecting the right projects. These, in turn, must deal with their challenges. Since the inception of blockchain in 2008 by the pseudonym Satoshi Nakamoto, the validation of networks has been based on Proof of Work consensus. This is often referred to as the process of mining.
What does mining do?
Mining requires the network participants to solve a very difficult cryptographic problem. The answer to the problem is a long string of characters, which are randomly generated by blockchain technology. The goal is to find this answer before the others do. In return, you will receive crypto (e.g., Bitcoin) for the work you have put in.
The person who finds the solution to the cryptographic problem is validating the new transactions, which will be added as a block to the entire chain of transactions. Why all the hassle to validate transactions? With all the computing power dedicated to validating transactions, it becomes hard for a malicious actor to manipulate the network. The malicious actor should have lots of computer power, and even then, it can prove very hard. This is also the key reason why the network effect in crypto is important; once a critical mass has been reached, the network can also be considered more secure.
You think; this can be easier
And you are right. Although Proof of Work has stood the test of time, it does come with huge costs. Especially in terms of electricity, consumption should not be underestimated. This, among other reasons, has led innovators in the field to look for different approaches to the problem. One of these groups can be considered green cryptocurrency, as they aim to solve the problem of overconsumption with the introduction of new consensus mechanisms.
Proof of Stake consensus
A good example of such an innovation is the Proof of Stake. This consensus mechanism does not focus on a difficult cryptographic puzzle but instead is based on the network participants. The theory behind it: when a participant has a stake in the network, they will act for the benefit of the network. Thus, the participants are randomly selected (e.g., six at a time) based on their stake, and validate the transactions of a block together.