Advocates of cryptocurrency find the promise of a future economic system that is managed by a Blockchain (a decentralized database that is shared between nodes in a computer network as opposed to being held in one location such as a central banking institution) compelling. The rapid growth of cryptocurrency is evident to anyone who has been paying attention. The global cryptocurrency market was worth approximately $793 million in 2019. It’s now expected to reach nearly $5.2 billion by 2026, according to a reportMarket research organization Facts and Factors. In just one year — between July 2020 and June 2021 — the global adoption of cryptocurrency surged by more than 880 percent.
But the increasing popularity of cryptocurrency has environmentalists on edge, as the digital “mining” of it creates a massive carbon footprint due to the staggering amount of energy it requires. Based on data from Bitcoin Energy Consumption Index from Digiconomist, an online tool created by data scientist Alex de Vries, the carbon footprint of Bitcoin, the world’s largest cryptocurrency, is equivalent to that of New Zealand, with both emitting nearly 37 megatons of carbon dioxideAccording to a February 2021 report, every year into the atmosphere CNBC article.
To understand why this is a problem, it’s important to explain what goes into creating a cryptocurrency like Bitcoin. Bitcoin transactions can be tracked via a public ledger made up of computers from around the globe. This is different from fiat money that is regulated by central bankers. “Mining” — a process in which computational puzzles are solved in order to verify transactions between users, which are then added to the blockchain — allows this validation process to take place, which is an energy-intensive process.
It’s been a bit of a wild ride for Bitcoin. The market price for a single Bitcoin plunged below $30,000 in June 2021 for the first time since January 2021 — fallingIt has dropped more than half off its April peak of about $65,000 However, there are still some analystsAnd billionaire investorsMany prominent businesses continue adopting the cryptocurrency and they remain bullish on it.
Goldman Sachs started trading Bitcoin futures(Agreeing to transact a coin at a predetermined future price and date). Tesla invested $1.5 billion in Bitcoin. PayPal announcedIn March 2021, it announced that its U.S. customers would be able to use cryptocurrency for payment to its millions of online merchants. El Salvador became the first country in September to accept Bitcoin. legal tender. This is in addition the fact that big name brands like AT&T, Home Depot, Microsoft, Starbucks and Whole Foods now accept Bitcoin payments, could pave the way for mainstream use. But if the bulls have right, the price of one Bitcoin will go up eventually hits $500,000It would pump more carbon dioxideThere is more to the atmosphere than what is released in countries like Brazil or Mexico.
Digital assets have also shaken up another sector, the art world. Digital artworks are now available. making headlines for the huge amounts they’ve been selling for on the market through the use of non-fungible tokens, more commonly known as NFTs, a type of guarantee backed by the Ethereum blockchain. In simpler terms, the works are created, or “minted,” through a process called proof-of-work (PoW), which establishes its unique identity, as explained in an article on Hyperallergic.
The carbon footprint of a single Ethereum transaction as of December 2021 was 102.38 kilograms of CO2, which is “Equivalent to the carbon footprint of 226,910 Visa transactions or 17,063 hours of watching YouTube,” accordingDigiconomist. According to Digiconomist, the electric energy footprint of an Ethereum transaction is roughly the same as that used by an average household in the United States for 7.28 days.
In March 2021, Austrian architect Chris Precht announced that he was “[abandoning] plans to sell digital artworks backed by NFTs due to the environmental impact of mining the digital tokens,” according to Dezeen magazine. He explained that he had made three digital artworks and wanted them to be sold using blockchain technology. “I wanted to create 300 tokens because I had three art pieces and I wanted to make each one in an edition of 100.… I would have used the amount of electricity I usually use in two decades,” Precht explained.
“[W]e’re largely powering 21st-century technology with 19th-century energy sources,” Andrew Hatton, head of information technology at Greenpeace United Kingdom, told CNBC. He attributes this energy usage to the “huge amount of data-crunching needed to create and maintain this cyber-currency,” a process that demands a lot of electricity. The problem, according to Hatton, is that “only about a fifth of the electricity used in the world’s data centers comes from renewable sources.”
Another important aspect of cryptocurrency is the limited supply. The fact that there is a limited supply of cryptocurrency means that the math problems involved in transactions will become more complex over time. This in turn makes it more expensive to mine. Each digital token that is issued is protected by its own cryptographic reference. Mining incentives are another factor that can increase energy consumption over time. In terms of Bitcoin, each time a miner solves the complex hashing algorithm required to produce Bitcoin (the “PoW”), they receive a small amount of the cryptocurrency itself.
This is the inherent problem, as Charles Hoskinson (co-founder of Ethereum) explains. told CNBC, is that “the more successful bitcoin gets, the higher the price goes; the higher the price goes, the more competition for bitcoin; and thus the more energy is expended to mine [it].” As the price continues to rise, so will the incentive to mine the cryptocurrency, creating a feedback loop that spells trouble for the climate.
According to the December 2021 figures of the Cambridge Bitcoin Electricity Consumption Index (CBECCI), Bitcoin accounts for approximately 0.52 percent of the total global electricity consumption. That might not sound like much, but Digiconomist calculates Bitcoin’s total annual power consumption as of December 2021 to be around 201.89 terawatt-hours, equivalent to the power consumption of Thailand.
“Such numbers should be taken with a good deal of salt. Bitcoin’s energy use depends crucially on its price, which swings wildly. The authors [of a paper published in April in the journal Nature Communications]As the rate at which new Bitcoins are created is halved every four years, it is reasonable to assume that the long-term trend in bitcoins will be upward. Reality will doubtless prove more complicated,” notesThe Economist. “But the general picture — that bitcoin is a dirty business — fits with other research. One oft-cited model, which uses publicly available blockchain data, reckons its global energy consumption is already equal to that of Kazakhstan, and that its carbon footprint matches Hong Kong’s.”
The problem with the enormous energy consumption is also where that energy comes. There is no reliable statistic on the percentage of renewable electricity used in Bitcoin mining. Earth.org cites two conflicting measures of Bitcoin’s energy usage: CoinShares, a cryptocurrency asset management and analysis firm, reported in 2019 that 74.1 percent of Bitcoin’s electricity comes from renewables, while the University of Cambridge puts that number at 39 percent, according to a reportIt was issued in 2020.
A better indicator of Bitcoin’s electricity source is not how it is powered but where its power comes from. A March 2021 article Quartz estimates that since April 2020, “around 65 percent of bitcoin mining capacity, or hashrate, was based in China due to its cheap electricity.” This figure should give a better understanding of the primary source of fuel currently powering Bitcoin.
In May 2021, at least half of China’s significant share of Bitcoin mining was located in the coal-rich province of Xinjiang, according to the Cambridge Bitcoin Electricity Consumption Index, cited Quartz. 2020 63 percent of China’s Bitcoin mining came from coal-fired plants, FortuneReport in July 2021, citing Rystad Energy figures. “The energy research firm estimates that if China were to eliminate bitcoin mining, it would cut CO2 emissions by 57 million [metric tons] — the equivalent to what the entire country of Portugal emits in a year,” the FortuneNotification.
These figures are not surprising, but cryptocurrency may be heading for a more sustainable and energy-conscious future. In September 2021, Chinese President Xi Jinping told the UN General Assembly that his country would “strive to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060.” That could lead to provinces such as Xinjiang being forced to move more toward renewables. The call from Beijing has also prompted nearby territories such as Inner Mongolia (which made up 8.7 percent of China’s Bitcoin mining in 2020) to ban all crypto mining in mid-2021. If the change doesn’t come from within China after these crackdowns, Bitcoin mining may grow somewhere else as miners look “to explore clean energy like surplus natural gas, shifting their focus from China to countries like Iceland, Norway, and Canada,” according to Quartz.
It’s important that any valid criticism of Bitcoin considers the broader perspective around energy usage. Michel Rauchs, research associate at the Cambridge Centre for Alternative Finance. explainedTo CNBC, “Although we agree the amounts [of energy needed by Bitcoin] are ludicrous right now, that is still half as much as inactive home appliances in the U.S. consumed.” A similar line of logic could be applied to a variety of everyday tasks such as sending emails or using the internetBoth of them use up a fair bit of energy.
“What we have here is people trying to decide what is or is not a good use of energy,” Meltem Demirors, chief strategy officer of CoinShares, told CNBC. For Demirors, Bitcoin’s energy transparency places it in a better position than other, more opaque energy-consuming industries such as the banking industry.
This is why a May 2021 reportGalaxy Digital, an investment management and financial services firm based in New York, found that Bitcoin’s energy consumption was less than half the amount produced by the banking or gold industries. Putting this finding into perspective, the report’s authors note that, “Bitcoin is a fundamentally novel technology that is not a precise substitute for any one legacy system.” What this means is that, unlike traditional currency or gold, Bitcoin is “not solely a settlement layer, not solely a store of value, and not solely a medium of exchange.” This makes Bitcoin’s relative energy consumption productive in comparison to comparative sectors, given its robust potential uses.
Galaxy Digital’s report further addresses the source of energy used by miners to generate Bitcoin. “Critics often assume that the energy expended by miners is either stolen from more productive use cases, or results in increased energy consumption,” according to the report. “But because of inefficiencies in the energy market, bitcoin miners are incentivized to utilize non-rival energy that may otherwise be wasted or underutilized, as this electricity tends to be the cheapest.” A recent case in point can be found in El Salvador, where the president has announced the use of geothermal energyIt will power its Bitcoin mining.
This endeavor promises a more sustainable future for cryptocurrency. It remains to be seen if this will make a significant impact on the climate crisis given government and industrial inaction. Even if cryptocurrency can coexist with a carbon-free future, critics point to the fact that Bitcoin’s wealth is concentrated in a very small number of investors. A recent study by the MIT Sloan School of Management researchers and the London School of Economics reports that the majority of Bitcoin wealth goes to a small number of investors. Wall Street Journal, “the top 10,000 bitcoin accounts hold 5 million bitcoins, an equivalent of approximately $232 billion.” Speaking about Bitcoin, Antoinette Schoar, a finance professor at MIT Sloan School of Management and co-author of the study, said, “Despite having been around for 14 years and the hype it has ratcheted up, it’s still the case that it’s a very concentrated ecosystem.”
This article was written by Earth | Food | Life, a project by the Independent Media Institute.
