Cryptocurrency and the Environment
As time goes on, the cryptocurrency market is gaining robust momentum and becoming more mainstream. On all sources of media, the bombardment of advertisements and endorsements make cryptocurrency hard to avoid. A system that once felt like a far-fetched future entity, cryptocurrency is becoming a big time player. Cryptocurrency critics argue against the volatility of these assets as well as the environmental effect of cryptocurrency “mining”. Distrust due to volatility is a less powerful claim to eliminate cryptocurrencies as many other investments are subject to volatility. Harm to the environment, however, is problematic due to the goals of contemporary society. This article will explore the effect cryptocurrency mining has on the environment and the steps to make the industry more eco-friendly.
Before delving into the “mining process” of cryptocurrency, it's important to understand what the purpose of these coins are. Those bullish on cryptocurrency see the digital assets as a potential store-of-value or alternative form of currency. Bitcoin is seen as “digital gold” and a prospective inflation hedge. Gold has been a store-of-value for centuries, but modern technology offers an opportunity for people to turn in their tangible assets for digital ones. Bitcoin is easier to acquire, transfer, and store than gold, making it an attractive way to fight inflation (Ervin 2020). The accessibility and increasing value of cryptocurrencies make their use as a store-of-value promising. Alternatively, cryptocurrency may foreseeably become a legitimate medium of exchange. On cryptocurrency exchange sites, cryptocurrencies have a dollar value which is comparable to exchange rates between fiat currencies. While these exchange rates are subject to much more volatility due to them being solely based on supply and demand, they do retain value, and as of recent, increasing value compared to the US Dollar.
The technology that makes these payments unique is the blockchain network which they operate on. On the blockchain, which is like a digital ledger, immutable transactions of cryptocurrency are processed and recorded. Bitcoin miners earn revenue by both auditing transactions and by attaining new Bitcoins. All transactions must be audited by “miners” who in exchange receive payments (Tidy 2021). Without miners, these transactions are not confirmed and “blocks” are not added to the blockchain. These blocks can be thought of as extremely secure, fixed receipts of crypto transactions. To unlock more coins, the Bitcoin code forces miners to solve increasingly complex mathematical puzzles. As the supply of unattained Bitcoin decreases and the price of a Bitcoin rises, the demand for mining has shot up. A decade ago a single PC had the computing power to mine a Bitcoin, but over a thousand highly powered computers are now needed to have hopes of completing the puzzle and acquiring coins (Hiller 2021).
To accomplish this goal, miners require immense amounts of energy. Since energy is their only variable cost, profit-hungry miners are incentivized to migrate towards cheap sources of energy (Sigalos 2021). Cheap energy like fossil fuels are oftentimes the most used and pose a significant threat to the environment. Energy consumption is a key metric in analyzing the cost of cryptocurrency and projecting its future across the globe. Estimates suggest that the bitcoin network consumes 77.78 trillion watt hours on an annualized basis, more than entire countries in some instances (Bird 2021). A lot of this energy consumption came at the hands of China, although, in June 2020, China banned cryptocurrency due to concerns with fraud and other matters. This led to a 38% drop in mining globally, and a proportional drop in crypto-mining carbon emissions. While this provided optimism for environmentalists, the crypto-mining companies in China abruptly transitioned abroad, doubling their mining output in places like Kazakhstan (Tidy 2021). For companies, moving to Kazakhstan is great. The electricity is cheap and plentiful. The growth of Kazakhstan as a mining hub, however, has costly environmental implications as 87% of Kazakhstan’s electricity comes from fossil fuels, with coal accounting for 70% (Tidy 2021). These environmental effects are sizable and factored in when envisioning future cryptocurrency usage.
Environmentally conscious critics of cryptocurrency are heard across many different platforms. One prominent voice in the crypto-world, Elon Musk, has condemned Bitcoin for its carbon emissions. These emissions contradict Tesla’s mission of sustainable energy, and create a hindrance for Musk who is personally engrossed in cryptocurrency. On May 12, 2021, Musk sent out one of his many influential tweets claiming that Tesla was “suspending vehicle purchasing using Bitcoin” until “mining transitions to more sustainable energy” (Musk 2021). This was a large setback for cryptocurrency optimists, and the price of Bitcoin reacted accordingly as it spiraled into a sharp price dive that remained low until picking up momentum again in July 2021. To little surprise, the mid-July price rally was in response to a statement by Musk, as he announced that Tesla is “likely” to accept Bitcoin payments so long as 50% of the energy used to mine is renewable and this percentage appears to be trending upwards. This setback may demonstrate that the longevity of cryptocurrency mining rides on the ability to use clean and renewable energy.
Recently, Bitcoin miners have targeted better sources of energy. In the US, for instance, Bitcoin miners and struggling nuclear-power plants have begun forging partnerships that benefit both parties (Hiller 2021). The miners who are scrutinized for their significant carbon footprint are paying for and using the extra energy produced by nuclear plants. This nuclear energy has low carbon emissions and would allow miners to be cleared of any future regulations—or to facilitate Bitcoin transactions with a company like Tesla who demands clean energy. Over the past 9 months, the energy sourcing of Bitcoin mining in the US has improved as the country heads towards more renewable energy as a whole. It is believed that over 50% of Bitcoin mining in the US is already powered by renewables (Sigalos 2021). The safest bet for miners is to find the cheapest sources of renewable energy they can to fight future regulatory risks. The more environmentally friendly crypto mining becomes, the more favorable the future becomes for these coins.
In the presence of change, skepticism and doubt arise. When the world transitioned from barter economies to monetary economies, hesitancy was undeniably widespread. The same hesitancy holds true for modern technology. Innovation sparks change that is intended to improve our lives and cryptocurrency is no different despite initial shortcomings. The hype around cryptocurrency and the sheer value of these coins inspires a perfecting process which will ultimately make these assets beneficial. As long as there is a continued focus on energy efficiency, cryptocurrency should become a progressively prominent entity across the globe.
References
Bird, Mike. 2021. “Bitcoin Will Break Wall Street's Heart.” WSJ. Accessed October 28, 2021. www.wsj.com/articles/bitcoin-will-break-wall-streets-heart-11610534920.
Ervin, Eric. 2020. “The Case for Cryptocurrency: Why Even the Most Cynical Bitcoin Bear Should Consider Investing and How to Get Started.” Forbes. Accessed October 28, 2021. https://www.forbes.com/sites/ericervin/2020/05/07/the-case-for-cryptocurrency-
Hiller, Jennifer. 2021. “Bitcoin Miners Eye Nuclear Power as Environmental Criticism Mounts.” WSJ. Accessed October 28, 2021. www.wsj.com/articles/bitcoin-miners-eye-nuclear-power-as-environmental-criticism-mounts-116 32654002.
Musk, Elon (elonmusk). “Tesla & Bitcoin.” Twitter. May 12, 2021. https://twitter.com/elonmusk/status/1392602041025843203?s=20.
Tidy, Joe. 2021. “US Leads Bitcoin Mining as China Ban Takes Effect.” BBC. Accessed October 28, 2021. https://www.bbc.com/news/technology-58896545.
Sigalos, MacKenzie. 2021 “Bitcoin Mining Isn’t Nearly as Bad for the Environment as it Used to Be, New Data Shows.” CNBC. Accessed October 28, 2021. www.cnbc.com/2021/07/20/bitcoin-mining-environmental-impact-new-study.html.