Cover image credit: Art Rachen, Unsplash.com
By Andrew Lobo
The last few years have been characterized by mask-wearing, social-distancing, and an unprecedented rise in cryptocurrency demand. Cryptocurrency is defined as a digital currency — one which is not bound by government laws or external manipulation. Rather, the currencies exist on decentralized networks using blockchain technology: “a distributed ledger enforced by a disparate network of computers” (Frankenfield). The ever-growing demand for this form of monetary exchange has seen the price of Bitcoin soar from pre-pandemic levels of $8,900 to over $68,500 at its peak just a few weeks ago.
The advantages of cryptocurrencies are plentiful: it removes the need for a bank or other central figures to take control of monetary transactions. Fund transfers are done with minimal transfer fees, and the cryptography that cryptocurrency is made of makes it an incredibly secure and anonymous platform. The finite number of coins makes the currency immune to inflation. Nevertheless, the disadvantages of cryptocurrencies are also apparent: they are extremely volatile, are not based on any material products or services like regular money is, and have had a devastating impact on the environment. But by putting a lens on the environmental costs, we can move toward offering potential solutions to the form of payment that is nothing less than guaranteed to have a world-changing influence in the coming years.
Bitcoin mining, the process of solving long algorithms to give currency to a user, is extremely energy-intensive. In fact, the energy consumption of Bitcoin mining has surpassed the carbon footprint of Argentina. This consumption is only getting larger — as Bitcoin continues to be mined, the proofs required to solve the algorithms becomes more difficult, and therefore, requires more energy (The Guardian). This becomes a problem when we consider where mining is being done. Almost half the world’s crypto mining takes place in China, where there are few restrictions for energy use and a dependence on coal for energy. In Iran, Bitcoin has been blamed for widespread energy outages (Laurent). Kazakhstan—a place home to an abundant amount of coal—is now the second biggest crypto mining location, holding over 8% of the market (Sigalos). Tragic stories of immense fossil fuel consumption and electricity outages across the world are the tradeoff of the decentralized, free-from-government currencies.
Notable crypto fanatics like Elon Musk also increase the amount of energy consumed by crypto, with a surge of trading volume in many currencies following tweets. Musk’s company, Tesla, invested $1.5 billion into Bitcoin and even permitted consumers to purchase their vehicles using Bitcoin. In turn, Bitcoin’s value rose to a then-high $58,000. But when Tesla sold 10% of its Bitcoin, the currency fell by $30,000. The volatility of crypto only adds to its environmental cost (India Times) as it increases the movement of trading and mining.
New data from Cambridge University shows that Bitcoin mining is not having the cost that we expected it to have, however. China’s most powerful bodies are cracking down on cryptocurrency owners and miners because of their skepticism of it. They not only believe that it would have economic and financial ramifications, but also that it undermines the digital yuan that they are creating. In fact, Bitcoin lost over 9% of its value after China’s ban, and other cryptocurrencies also fell as a result (John et. al.). The ban also removed over half of China’s crypto miners, meaning that the power consumption of cryptocurrency was decimated. But with a decrease in one place, comes an increase in another. The United States, shortly after the ban, experienced a drastic increase in crypto-related energy consumption.
There is a bright side, though. As America becomes increasingly green, crypto likewise is becoming greener. Right now, Bitcoin mining is made 50% of renewable sources. Green energy solar blockchain mining is becoming a more and more pronounced means of obtaining crypto. As many big currencies use inefficient “proof of work” to function, many new blockchains utilize “proof of stake” systems which are based on validators rather than miners. Instead of miners solving problems, validators are chosen, effectively removing competition (Blinder).
Thus, there are many ways we can make crypto more environmentally-friendly. First, we could invest in environmentally-friendly coins like Chia, IOTA, Cardano, Nano, Solarcoin, Bitgreen, and many more (Lacey). Second, since Bitcoin mining is inevitable, promoting upgraded equipment to be more energy efficient would greatly reduce carbon emissions. Third, governments instituting a carbon tax for high energy consumers would help mitigate the environmental cost.
The future of cryptocurrency is bright: if people work together to make it more environmentally friendly, crypto could be an incredible technological advancement. It is a technology that has never been used before — a decentralized platform to trade value. As the use of physical cash gradually declines, and the use of digital cash exponentially increases, cryptocurrency is sure to hold a large portion of the money market in the future. The question remains of what its environmental legacy will be.
- Blinder, Marc. “Making Cryptocurrency More Environmentally Sustainable.” Harvard Business Review, 21 Aug. 2019, hbr.org/2018/11/making-cryptocurrency-more-environmentally-sustainable.
- “Electricity Needed to Mine Bitcoin Is More than Used by 'Entire Countries'.” The Guardian, Guardian News and Media, 27 Feb. 2021, www.theguardian.com/technology/2021/feb/27/bitcoin-mining-electricity-use-environmental-impact.
- “Extent of Elon Musk's Influence on Cryptocurrency; Where Is It Headed?” The Economic Times, 29 May 2021, economictimes.indiatimes.com/markets/cryptocurrency/extent-of-elon-musks-influence-on-cryptocurrency-where-is-it-headed/articleshow/83037268.cms?from=mdr.
- Frankenfield, Jake. “What Is Cryptocurrency?” Investopedia, Investopedia, 16 Nov. 2021, www.investopedia.com/terms/c/cryptocurrency.asp.
- John, Alun, et al. “China's Top Regulators Ban Crypto Trading and Mining, Sending Bitcoin Tumbling.” Reuters, Thomson Reuters, 24 Sept. 2021, www.reuters.com/world/china/china-central-bank-vows-crackdown-cryptocurrency-trading-2021-09-24/.
- Lacey, Rachel. “Eco-Friendly Cryptocurrencies: Everything You Need to Know.” Times Money Mentor, 22 July 2021, www.thetimes.co.uk/money-mentor/article/eco-friendly-cryptocurrencies/.
- Laurent, Lionel. “Bitcoin Is an Incredible Dirty Business.” Bloomberg.com, Bloomberg, 26 Jan. 2021, www.bloomberg.com/opinion/articles/2021-01-26/is-bitcoin-mining-worth-the-environmental-cost.
- Sigalos, MacKenzie. “Bitcoin Mining Isn't Nearly as Bad for the Environment as It Used to Be, New Data Shows.” CNBC, CNBC, 20 July 2021, www.cnbc.com/2021/07/20/bitcoin-mining-environmental-impact-new-study.html.