Note: This is not financial advice. This is for educational purposes only. Please note that cryptocurrency is a highly volatile asset class; only invest what you can afford to lose.
Energy-efficient cryptocurrencies are all the rage after Tesla CEO Elon Musk posted a May 12th tweet that rattled the virtual currency market. Musk announced that Tesla customers can no longer use Bitcoin (BTC). Bitcoin, Musk explained, is far too unkind to Mother Nature and he's on the hunt for a greener coin.
Investors are scrambling to predict which green cryptocurrency could potentially replace Bitcoin. Could it be Dogecoin (DOGE)? Well, it's a possibility. It's less eco-destructive than Bitcoin; DOGE consumes 0.12 kilowatts per hour vs. BTC's whopping 707 KWh. However, one cryptocurrency is far more environmentally friendly than DOGE.
TRG Datacenters published a study on the most energy-efficient crypto out of a sample of popular altcoins. That being said, according to TRG Datacenters' analysis, here are Tesla's potential top green picks to replace Bitcoin.
Which cryptocurrency is most energy efficient?
The most energy-efficient cryptocurrency is Ripple (XRP); it consumes only 0.0079 KWh per transaction. To fully grasp why Ripple is the most eco-friendly altcoin, you need to understand how it compares to Bitcoin.
Bitcoin uses the proof-of-work (PoW) protocol. PoW involves a network of miners competing to solve cryptographic puzzles and verify transactions using hefty computational power. The first miner to solve the puzzle earns BTC as a reward. As you can imagine, thousands of miners bumping heads to outpower one another is bound to be an eco-unfriendly system.
Ripple doesn't use PoW; it uses a consensus protocol that, in short, prompts its network to "vote" on the integrity of an incoming transaction. If 80% agree, the transaction is cleared to enter the Ripple block.
Although XRP is the most energy-efficient cryptocurrency, it's unlikely to be chosen as Tesla's new currency darling. The U.S. Securities and Exchange Commission (SEC) slapped Ripple with a lawsuit last year, and Tesla may want to steer clear of litigation-bound coins.
The most energy efficient cryptocurrencies
Ripple is the greenest cryptocurrency of all the altcoins analyzed by TRG Datacenters. It only consumes 0.0079 kilowatts per hour (KWh) while Bitcoin's power consumption equals the energy waste of Argentina. As mentioned, Ripple doesn't use PoW like Bitcoin. It uses a protocol that polls its network to validate account balances and transactions. If the majority agrees on the transaction's integrity, it gets the green light.
Ripple facilitates cross-border financial payments. In other words, Ripple mitigates the frustration that comes with sending money to foreign nations. Currently, cross-border financial payments are slow, expensive and require several middlemen who all want a piece of the pie. Ripple, on the other hand, is super fast; it processes over 1,500 transactions per second. This is nearly seven times faster than international e-wallets like PayPal.
Could Tesla choose XRP as its Bitcoin replacement? Probably not. As mentioned, that SEC lawsuit is looming over it like a dark cloud.
No, Dogecoin is not the most eco-friendly cryptocurrency, but it's not the worst either. Despite operating on a PoW protocol like Bitcoin, its underlying network only consumes 0.12 kWh. On top of that, Musk hinted that DOGE is his number one pick as Tesla's new accepted cryptocurrency.
Thanks to Musk's backing, DOGE — a joke token created by two software developers in less than two hours — is getting some serious stamps of approval, including an upcoming Coinbase listing. The downside of DOGE, however, is that it's highly influenced by Musk's antics. One wrong word (ahem, "hustle") and DOGE could come crashing down.
One of the most energy-efficient cryptocurrencies is Cardano (ADA) with a KWh rate of just 0.5. In fact, this is the reason ADA survived the crypto tumble sparked by Musk. Four days after Musk's anti-Bitcoin tweet, ADA reached an all-time high of $2.42.
Cardano runs on a proof-of-stake (PoS) protocol while, as mentioned, Bitcoin runs on proof-of-work. PoS involves the use of "validators": participants who earn interest for locking their coins into Cardano's blockchain network. PoS uses a consensus algorithm that randomly selects validators to verify transactions and earn rewards. PoS is a lot more sustainable than PoW because miners don't need to solve complex algorithms, and the required processing power is much lower.
Cardano aims to rectify the issues that plague other blockchains by offering a network that improves scalability, transaction speeds and decentralization. It's no wonder ADA is on our best cryptocurrencies list.
Think of Litecoin as the diet version of Bitcoin. Charlie Lee, a former Google engineer, launched Litecoin 10 years ago to offer an alternative that's more streamlined than Bitcoin's clunky network.
Similar to Ripple, Litecoin boasts that it's a commerce-centric digital asset that is zippier and cheaper than Bitcoin. "Litecoin features faster transaction confirmation times and improved storage efficiency," the official website said.
According to InvestorPlace, Bitcoin takes 10 minutes to confirm a transaction, but Litecoin takes only 2.5 minutes. Transaction fees for Bitcoin are about $0.68 while Litecoin only sets you back $0.0024 per block.
Litecoin uses a proof-of-work protocol like Bitcoin, but it's Scrypt-based. For the sake of simplicity, all you need to know is that Scrypt lets miners generate hashes with commonly available hardware, making it easier to mine than BTC. Bitcoin, on the other hand, incentivizes miners to use energy-sucking, expensive, powerful hardware that's taxing on the environment.
Serving up a KWh rate of 18.5, Litecoin is no Ripple or Dogecoin, but it expends a fraction of the power that Bitcoin spews.
Bitcoin Cash, launched in 2017, is a hard fork of the Bitcoin blockchain we know today. Spinning off from Bitcoin might have been a smart decision; Bitcoin Cash uses a fraction of the energy of its power-hungry parent with an eco-friendly rate of 18.957 KWh.
BCH is peer-to-peer electronic cash for the web. It's fully decentralized with no central banks and no meddling third parties. Compared to BTC, BCH offers cheaper processing fees and speedier transactions.
Bitcoin can only manage seven transactions per second; compare this to Visa's rate of 2,000 transactions per second. BCH is no Visa, but it beats Bitcoin by a mile and processes more than 100 transactions per second. People may automatically rule out Bitcoin Cash as an eco-destructive blockchain due to its name, but this is far from the truth.
Note: The author of this article is not a financial advisor and nothing in this article should be taken as financial advice. Consult a financial expert before investing.