According to experts of the European Central Bank (ECB), cryptocurrencies based on the proof-of-work (PoW) algorithm are a threat to the environment, while assets using proof-of-stake (PoS) are one of the few options for the sustainable development of digital assets.
The bank has reported that last year the average electricity consumption of Bitcoin and Ethereum networks, which are based on the proof-of-work consensus algorithm, exceeded the figures for Austria, the Netherlands and Spain in 2020, as well as the installed capacity of the world's largest gravity-fed hydroelectric dam, the Three Gorges Dam.
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According to the report:
"Estimates of the carbon footprint for Bitcoin and Ether further show that their combined yearly emissions as of May 2022 negate past and target greenhouse gas (GHG) emission savings for most euro area countries."
The company's analysts believe although Bitcoin has "dubious" benefits for society, blockchain technology itself has great potential. ECB experts have stressed that a possible solution to the problem is to stimulate PoS-based projects by states.
The experts have explained that the proof-of-stake algorithm uses digital assets (staking) as a resource, and not computing power. As a result, such networks consume significantly less electricity.