Bitcoin (CCC:BTC-USD) is in the news these days, not for its economic volatility but over the cryptocurrency’s perceived environmental harm.
The thinking is that Bitcoin mining and other blockchain validation processes should be environmentally sustainable.
This has led to a huge wave of demand for “green cryptos,” with investors trying to pick the next big altcoin that could usurp Bitcoin’s throne as the king of crypto.
Green Cryptos and Proof-of-Stake
Barron’s recently reported that a number of ESG-focused investors (environmental, social, governance) are concerned “that Bitcoin is contributing to global warming.” Here is what their argument, according to Barron’s:
“A lot of electricity — used by computers ‘mining’ Bitcoin — is still generated by burning fuels such as coal and natural gas. ESG investors appear to have swayed Musk to stop accepting Bitcoin as payment for Tesla vehicles…”
Keep in mind that Bitcoin mining is not non-green per se. For example, Bitcoin or Ethereum (CCC:ETH-USD) crypto miners that use electricity derived from coal or gas could be non-green. But Bitcoin or Ethereum mined from solar, geothermal, wind, hydropower, or battery sources are renewable green cryptos.
But there’s no getting around the fact that “proof-of-work” cryptocurrencies that utilize mining are very energy intensive, no matter where that energy comes from. As Georgetown University Associate Professor James Angel tells InvestorPlace:
“Bitcoin relies upon an extremely wasteful ‘proof of work’ algorithm that currently consumes the equivalent of 15 Chernobyl nuclear power plants running around the clock. An increase in the price of bitcoin brings in more mining activity and thus more electricity consumption. And bitcoin’s capacity is limited by design to seven transactions per second.
There are more efficient technologies such as ‘proof of stake,’ although there are controversies over the details. An environmentally conscious person should avoid all proof-of-work crypto assets. They are an environmental disaster.”
Proof of stake is an alternative method to proof-of-work for maintaining the integrity of a cryptocurrency. Just like proof-of-work, it prevents crypto holders from using their cryptos twice or more and thereby maintains the integrity of a cryptocurrency.
It works like this: certain “validators” put up a stake of their cryptocurrency to attest to the validity of a block in the blockchain. Through this staking system, validators earn a certain amount of crypto as a reward. This method does not involve heavy use of energy to earn crypto rewards. As such, these digital currencies can be thought of as green cryptos.
The list of green cryptos that investors should buy now to profit when they recover from the crypto crash are:
- Ethereum (CCC:ETH-USD)
- Cardano (CCC:ADA-USD)
- Polkadot (CCC:DOT-USD)
- NEO (CCC:NEO-USD)
- Algorand (CCC:ALGO-USD)
- Cosmos (CCC:ATOM-USD)
- ThorChain (CCC:RUNE-USD)
Let’s dive in and take a closer look at these green cryptos.
Green Cryptos Using Proof-of-Stake: Ethereum (ETH-USD)
Market Cap: $302 billion
Ethereum will likely outperform Bitcoin over the long run. For one, it has risen faster than Bitcoin this year, despite the recent downturn in crypto prices.
ETH-USD is up about 254% year-to-date as of May 31, while Bitcoin was up just 24.9% as of May 31. That is quite a difference, especially given that Ethereum is the second-largest crypto in terms of market capitalization.
I have written about Ethereum’s advantages over Bitcoin in the past. However, even though both of these cryptos use a proof-of-work (PoW) validation system (i.e., crypto mining), Ethereum will soon move to a proof-of-stake (PoS) system.
On May 18, The Ethereum Foundation announced in a blog post that Ethereum will transition to a “proof-of-stake” system within months. Yahoo! Finance reported that as a result, this method of recording and validating transactions will reduce carbon emissions by 99.5%.
Here is how it will work: participants in the network simply prove that they hold Ethereum. They then “stake” their Ethereum (i.e., set a small amount as collateral in case of a mistake) and they are allowed to validate and secure transactions in the network. According to Yahoo! Finance, a majority of participants in the network must validate transactions for them to go through. This majority requirement acts to check against fraud.
The article quotes Carl Beekhuizen, a developer at the Ethereum Foundation, as saying that the new system will dramatically reduce electricity usage. For example, under the existing PoW system, one transaction for Ethereum uses the equivalent of 2.8 days worth of a typical household usage of electricity.
Under the new PoS system, he estimates that one Ethereum will only use the electricity equivalent of 20 minutes of TV. By contrast, Bitcoin uses the equivalent of 38 house-days of electricity for one Bitcoin transaction.
So you can see that once the new Ethereum 2.0 PoS system takes effect, Ethereum will likely become much more popular with investors than Bitcoin.
Cardano (ADA-USD)
Market Cap: $52.7 billion
Cardano already uses a PoS system called Ouroboros. Any ADA owner can stake their coins to validate a blockchain set and receive rewards. This makes it one of the premier existing green cryptos on the market today.
In fact, some authors today believe that Cardano is a third-generation, Ethereum-like crypto, only better. They call Cardano the “Ethereum-killer.”
This is because although both cryptos focus on facilitating smart contracts, for example in finance, Cardano uses a PoS system. But that was before the Ethereum Foundation announced it was going to move soon to a PoS system from PoW.
Another problem with Ethereum is its high “GAS” fees. These are transaction fees you have to pay whenever you want to send ETH tokens anywhere, including in and out of a digital wallet. Cardano, which was started by Ethereum co-founder Charles Hoskinson, has fees that are much lower.
And by the way, it is now much easier to own Cardano. As of March 19, Coinbase (NASDAQ:COIN), the largest crypto exchange and wallet, has allowed trading in Cardano.
So far this year, Cardano is up 846% through May 31. This performance is 3 times better than that of Ethereum. So if trends continues, maybe Cardano really will become an Ethereum killer. The fact that it is already using a PoS system, combined with its low fees and outperformance, make it one of the best green cryptos.
Polkadot (DOT-USD)
Market Cap: $20.8 billion
Polkadot started the year at $8.307 and as of May 31, it was at $22.91, up 175% year-to-date. This was even after the altcoin dipped from its peak of $47.946 on May 13.
DOT-USD is down more than 50% from its peak. This implies that once the altcoin recovers, it could have quite the significant performance.
Polkadot’s blockchain platform allows messages and monetary values to be transferred peer-to-peer. In addition, the crypto uses a P0S system. Validators can be nominated by anyone, although typically transactions are validated by PoS-as-a-service operators.
Polkadot is a layer zero blockchain that connects different layer 1 blockchains together. These layer 1 blockchains are called parachains. Polkadot provides shared security and cross-chain communication between these parachains.
Polkadot holds auctions for a limited number of parachain slots it can give out to a limited number of auction bidders. They effectively lease out a slot for 2 years and earn fees.
Polkadot’s can accept all different kinds of independent chains. This has made it quite popular among developers and frequent crypto users.
Polkadot’s growing usage will eventually make this one of the top green cryptos.
NEO (NEO-USD)
Market Cap: $3.78 billion
NEO-USD was $14.50 at the end of Dec. 2020. Today, May 31, it is at $53.60. Even after falling far from its peak of $122.80 earlier in May, NEO is still up 270% year-to-date. This is about the same as Ethereum, as mentioned above.
But NEO is already using a PoS system, which makes it one of the top green cryptos in the world today. It is also a Chinese-founded crypto and is known as the “Ethereum of China,” according to Coingecko.com.
Neo’s PoS system is actually a variant of the typical PoS protocol. It is known as a Delegated Byzantine Fault Tolerance (dBFT). The dBFT system allows validators of a transaction to reach a consensus even when one or more of the participants involved are unreliable or corrupt.
Neo focuses on smart contracts. Its website indicates that the crypto provides “building blocks for the next generation internet.” It focuses on decentralized applications, like smart contracts, i.e., those that are run a network of users, not a single company.
Look for NEO to continue to do well this year. It is a Chinese PoS token that may become one of the top green cryptos.
Algorand (ALGO-USD)
Market Cap: $2.75 billion
ALGO-USD was at 39.81 cents at the end of Dec. 2020. Today, May 31, it is at 90.87 cents, even after falling from its peak of $1.68 earlier in May. So far this year it is up 128%.
In addition, Algorand is a scalable, secure, and decentralized digital currency and transactions platform. Its website indicates that it focuses on enabling next-generation financial products, protocols, and exchange of value. As such, Algorand calls itself a “FutureFi” crypto.
Moreover, Algorand created the world’s first pure proof-of-stake foundational blockchain designed for the future of finance.
As one interesting article on Medium.com put it recently, no one is talking about Algorand even though it’s one of the best cryptos. The author provided 5 elevator pitches for the crypto: low costs, 6% staking returns, a “carbon-negative” network, growth potential, and dApps (decentralized apps) upside.
Look for Algorand to soar this year as more analysts discover this top financial green crypto.
Cosmos (ATOM-USD)
Market Cap: $2.8 billion
Cosmos was at $5.87 at the end of 2020. Today, May 31, it’s at $13.58. That represents a year-to-date performance of 131%, despite having fallen from $29.44 earlier in May. Nevertheless, Cosmos is going to be one of our top green cryptos to buy.
Cosmos bills itself as “the Internet of Blockchains.” It is a decentralized network enabling data exchanges between different blockchains to resolve both scalability and interoperability issues.
One author on Medium.com suggests that Cosmos is slowly becoming “the backbone for interoperability between all cryptocurrency blockchains.” He says that this makes it a crypto gamechanger.
Just like Neo, as mentioned above, its network uses a dBFT validation system. This is a type of PoS system. In essence, it avoids the whole crypto mining system that requires heavy use of electricity.
As Cosmos gains popularity as one of the top green cryptos, look for its price to rebound later this year.
ThorChain (RUNE-USD)
Market Cap: $2.57 billion
ThorChain is a recently launched cryptocurrency that started trading in early March 2021 at around $5.25. It is now at $12.39 as of May 31. This puts it up 136% year-to-date.
ThorChain is a PoS blockchain system using Cosmos (see above). Its purpose is simple: it allows cross-chain token swaps in a non-custodial manner (i.e., digital wallets).
The best article that describes what ThorChain is about is on Medium.com: “An Introduction to ThorChain for Bitcoiners.“ The author describes that ThorChain allows cryptos to trade without the usage of a digital wallet or crypto exchange. The idea here is that the trading system won’t require personal information.
In addition, the author says that ThorChain will allow the original purpose of Bitcoin to be a borderless, immutable digital currency. In the process, ThorChain could end up becoming one of the top green cryptos in the world. Look for the RUNE token to do quite well as its popularity grows over the next year.
Green Cryptos to Outperform Bitcoin
These 7 cryptos using a proof-of-stake (PoS) system (except for Ethereum, which is transitioning to the same).
These green cryptos are very speculative. Average into these cryptos for a small portion of an investment portfolio. This may allow you to earn a decent return over time as investors recognize the benefits of reduced carbon-based cryptocurrencies.
On the date of publication, Mark R. Hake held a long position in Bitcoin and Ethereum. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
