Crypto Cleans Up Its Act

|May 29, 2021
Bitcoin in hand

All together now…

Let the free markets reign.

A few weeks ago, we told you about Bitcoin’s “energy crisis.”

Bill Gates had recently said that he was no fan of Bitcoin’s… because it uses too much energy.

But as we pointed out the irony in his words, we also said this:

The crypto industry is still in its early stages. And crypto developers have acknowledged the environmental impact the industry has.

There have already been several promising developments tackling the issue…

This is yet another simple problem the free market will tackle as the industry grows.

And since we wrote that, we’ve seen more proof that the industry is trying to clean up its act.

Verifiable Proof

Crypto’s large energy burden comes from how it verifies transactions. Called “proof of work,” the process requires lots and lots of computing power to solve complicated math problems.

But, in an exciting development, a growing list of cryptos are now using “proof of stake” to verify their transactions. With this process, transactions are verified by the number of coins a user has instead of by computer power. It creates a much smaller energy burden.

And we just got word that the second-largest crypto in the world (by market cap) is moving to proof of stake.

Speaking to Bloomberg on Sunday, Ethereum creator Vitalik Buterin said…

Switching to proof of stake has become more urgent for us because of how crypto and Ethereum have grown over the last year. I’m definitely very happy that one of the biggest problems of blockchain will go away when proof of stake is complete. It’s amazing.

The free market wins again!

Buterin expects the update will be complete by the end of this year. Investors should keep an eye on this one.

Creative License

Next, we’ll tip our hat to a more oddball market solution. Earlier this week, Andy told his Manward Letter readers about a new crypto that’s being touted as a zero-carbon alternative to Bitcoin.

But, as Andy wrote, there’s a catch. “It’s not really carbonless. The coin is minted by simply combining a traditional Bitcoin with 10 carbon [credit] tokens.”

Simply put, Bitcoin buyers can now offset the energy used in their crypto purchases and sleep better at night.

It’s a creative solution that acknowledges what we know about carbon credits: that it’s far easier for some folks – and some companies – to buy their way out of a problem than to change their ways.

Him Again?

And what kind of crypto column would this be if it didn’t mention Elon? Ever the headline-grabber, Musk set off a firestorm two weeks ago. He tweeted that Tesla would no longer accept Bitcoin as payment due to its environmental impact.

Now, before we scratch our heads and wonder how the man who sells solar panels and electric cars for a living could have missed that minor detail… let’s keep in mind that this is the same man who makes most of his money off of carbon credits.

So we shouldn’t be surprised he’s put himself in the middle of the problem.

This week, we learned Musk helped create the Bitcoin Mining Council. It’s the result of a meeting between Musk and several leading Bitcoin miners.

The purpose of the council is to improve Bitcoin’s sustainability… by promoting energy-usage transparency and encouraging miners to use renewable energy sources.

It remains to be seen how effective the council will be… or if it’s just a marketing stunt by Musk. The hope is that more visibility into Bitcoin’s energy usage will help allay the concerns of the climate community.

There’s a lot more to the crypto environmental story. But we can be sure that – one way or another – Bitcoin and the crypto industry will find market-based solutions to any energy problems.

And those solutions could be quite profitable for crypto investors.

Amanda Heckman
Amanda Heckman

Amanda Heckman is the editorial director of Manward Press. With unrivaled meticulousness, she has spent the past dozen or so years – give or take a few sabbaticals – sharpening Andy’s already razorlike wit. A classically trained musician and a skilled writer in her own right, Amanda takes an artistic approach to the complex world of investing. Her skill has led her to work with numerous bestselling authors, award-winning financial gurus and – lucky for us – the fine folks at Manward Press.