Research – Crypto Currency and How It Affects The Environment

The effect of CryptoCurrency on the environment

Some might see cryptocurrency as an easy and quick way to make money, while others could be playing the waiting game and going long term, but no one ever thinks about its costs on the environment. Cryptocurrencies have come quite a long way from their mysterious beginnings. While the mainstream financial world frowned upon it and thought of cryptocurrencies as tools for new types of scams, the industry has set itself out to the world, establishing itself as a real and ultimately game-changing environment. For example, Bitcoin and Ethereum have experienced massive price and user growth. However, there are still concerns about the long-term implications of widespread cryptocurrency adoption. Many professionals in that field and other people have shown much concern about the high energy consumption from cryptocurrency mining, which could result in an increase in carbon emissions and climate change. The mainstreaming of cryptocurrency, as it’s been dubbed, is a watershed moment in the financial world. This is especially true when it comes to Bitcoin, the first and most popular cryptocurrency. Its value has recently increased, similar to Dogecoin. Bitcoin was worth around $7,000 in April 2020; now, it is worth around $60,000. The potential profit from bitcoin “mining” has risen in lockstep with the cost of investing in it. Although Bitcoin mining is a completely online activity, the consequences can be just as harmful as the real thing.

Ten years ago, the term cryptocurrency was virtually unknown, but it has since gained widespread acceptance. It refers to cryptographic-based digital or virtual currencies that employ highly complex encryption methods. These online coins and cryptos are made to be highly secure and safe with almost no risk of being counterfeited, are immune to inflation, and are conveniently movable. Bitcoin mining is the process where new bitcoins are developed. It is also an essential part of the blockchain ledger’s improvements and evolution. It is done with the help of high-tech computers that solve highly complex computational math problems. Bitcoin mining is the process when high-powered computers solve intense math problems that are too complex to be solved by hand/ man and hard enough to put even the best computers to the test. Proof-of-work blockchains’ competitive nature has resulted in massive energy consumption. Bitcoin transactions are recorded by a distributed network of miners who are rewarded for their efforts through block rewards rather than by a central database. There are computers that are made special for competing to create new blockchains that can be made only by solving cryptographic puzzles. Digital currencies may not appear to pose a significant environmental risk at first glance. However, the real-world consequences of dealing in cryptocurrencies are finally emerging, and they paint a bleak picture. Elon Musk’s decision to stop accepting bitcoin as payment for his well-known company Tesla was due to his interest in the cryptocurrency’s impact on the environment. In an article by The Guardian, it is stated, “Musk sent the price of bitcoin into freefall in May when he said that Tesla would stop accepting the cryptocurrency for payment because it the so-called mining of the coins used too much fossil fuel-generated electricity.”, (The Guardian).

Furthermore, Bitcoin and other cryptocurrency critics have been concerned about the impact it has on the environment for quite a while now. The cryptocurrency consumes more energy than countries like Sweden and Malaysia combined. The problem is extremely noticeable if one considers the massive size of cryptocurrencies and the increasing demand for mining them. Blockchain-based currencies currently consume the same amount of energy as a number of small countries, but their popularity is growing. And as demand rises, so will the energy requirements of the industry. Crypto mining becomes less efficient as their prices continue to increase, and it is a crucial source of concern among environmentalists. As the increase of the price of bitcoin continues, the mathematical problems that are used to create blockchains become more complex, while its transactions continue to remain constant. In the article, it stated, “In the case of bitcoin, the mathematical puzzles to create blocks get more difficult as the price goes up, but transaction throughput remains constant. This means that over time, the network will consume more computing power and energy to process the same number of transactions.”(Investopedia). This means that, in order to be able to handle the same amount of transactions, the network will need more computing power and energy over time. Apart from energy consumption, bitcoin mining generates a large amount of technological waste when the technology becomes obsolete. This is especially true for ASICs, which are specialized pieces of hardware used to mine the most popular cryptocurrencies. These circuits, unlike other types of computer hardware, cannot be reused and quickly become outdated. According to Investopedia, “the bitcoin network generates between eight and 12 thousand tons of electronic waste every year” (Investopedia). If cryptocurrencies are made legitimate currencies, businesses would most likely be taxed on them due to their energy consumption. However, legislators and regulators disagree on whether digital currencies should be considered actual currencies. To make matters even more complicated, not all cryptocurrencies are created equal, nor do they all require the same amount of energy. Fortunately, for investors, the one coin that leaves the smallest energy footprint is called nano. It might not be the biggest or most profitable but it is one of the most energy-efficient coins.

Moreover, it is claimed that bitcoin prices have resulted in an outstanding increase in CO2 emissions. The historic ascent of Bitcoin over the last two years has resulted in an increase in emissions of almost 40 million tons, or the equivalent of 8.9 million new cars on the road. According to the BofA analysis in the article, it states, “…rising Bitcoin prices have led to an “astronomical” surge in CO2 emissions. Over the past two years, the historic rise of Bitcoin has caused emissions to increase by over 40 million tons—equivalent to 8.9 million cars added to the road.”(Fortune, Mellor). Bitcoin mining also emits more carbon than American Airlines, one of the world’s biggest airlines. Bitcoin’s emissions are also equivalent to the United States federal government, which has over 2 million people employed. In the article, it is said, “Bitcoin produces more carbon emissions than American Airlines, one of the largest airlines in the world with over 200 million passengers in an ordinary year. Bitcoin’s emissions are also comparable to those of the U.S. federal government.”, (Fortune, Mellor). The currency’s mining produces more CO2 than the entire country of Greece and several others and things may become worse than they already are. According to BofA in the article, “…if the price of Bitcoin rises to $1 million, the digital currency will overtake Japan as the world’s fifth-highest CO2 emitter. If $1 billion was invested in the currency and its value increased by 11%, the CO2 footprint would increase by 5.4 million tons or the equivalent of 1.2 million cars.” No other human activity has a bigger carbon footprint. That is, a carbon impact per dollar invested. It’s enough to supply electricity to 632,000 houses. Therefore, many cryptocurrency developers are considering switching to a more environmentally friendly mining method.

To add on, all of the computers that are participating in mining in the Bitcoin network compete for the reward of creating new blocks for Bitcoin’s underlying blockchain. The probability of establishing a new blockchain block is related to one’s part of overall computational power. Miners can only compete on cost efficiency in such an environment. The task of creating hashes necessitates the use of energy by mining devices. As a result, the amount of electricity required to accomplish a certain number of computations determines the efficiency of this hardware. A machine can be more profitable if it can perform more computations per unit of energy. As a result, a race to produce more efficient mining hardware has begun. The steady increase in newer mining machines is continuously improving, ensuring that previous ones will become outdated regularly. Less efficient mining equipment will inevitably be pushed out of the market eventually, as it cannot compete with newer and more effective machines. In the article, it claims “Continuous increasing energy (cost) efficiency of these newer iterations of mining devices ensures that older ones will inevitably become obsolete on a regular basis. Less efficient mining devices will be always be pressured out of the market sooner or later, as they simply cannot compete with newer (more cost-efficient) machines.” (Digiconimist). Given the difficulties in mixing Bitcoin with “green,” the only solution to make Bitcoin genuinely sustainable is to change its mining method. Alternatives such as Proof-of-Stake are already available and are used by a large number of alternative cryptocurrencies. Proof-of-stake is the process by which someone can validate block transactions based on the number of coins that they hold. To be more specific if someone has more coins, they have more mining power. In the article, it mentions, “Given both the fundamental challenges in combining Bitcoin with “green” renewable energy, as well as the electronic waste generated by the network, it should be concluded that the only way to make Bitcoin truly sustainable is to replace its mining mechanism. Alternatives to this (e.g. Proof-of-Stake) are already available and used by an array of alternative cryptocurrencies. It is about time that the Bitcoin community follows the example already set by others.” (Digiconomist).

I personally believe that short-term cryptocurrency is great, but over time, in the long term will greatly impact the environment. Some things that are good about cryptos are that everyone can own them as long as they are legally an adult, they can not be forged or faked, and it is a more private/ confidential way of making transactions. The point of cryptocurrency is to fix the standard currencies that all countries have by putting the power and responsibility in the cryptocurrency owners’ hands. All of the cryptocurrencies meet the five properties and three functions of money. The five properties of currency should be that it is fungible, durable, portable, recognizable, and stable. The three functions of currency are store of value, unit of account, and medium of exchange. Instincts might be encouraging and pushing people to invest in cryptocurrency because it has become massive around the internet and on social media space. People say that it was an “easy” way to make money, and they jumped right on the so-called trend. There is a lot more to learn about cryptocurrency. This hype also led to a lot of scams. Since some people don’t do their research on cryptocurrency, they can easily get scammed. A type of scam is called a “rug pull”, and basically, it is when a developer(s) of a cryptocurrency abandons a project and leaves with all of the funds. The developer waits for the moment that will make him most profited and then pulls out all of his shares from the liquidity pool of the currency, leaving the coin to plummet to a price of zero. The investors are unable to pull out the money that they have invested and are lucky if they make it out with a portion of their investments.

To conclude, the cost of bitcoin and other cryptocurrencies is determined by how useful they will be to society in terms of energy consumption and environmental impact. It’s tough to judge a moving target. The popularity of Cryptocurrency continues to rise, implying that more computing power is being used to serve a more significant number of people in the market. Leading into the future, No one is sure if mining for bitcoin or other cryptocurrencies is worth the environmental costs. Although much of this energy comes from coal and other fossil fuels, bitcoin supporters believe that renewable energy sources are just as important. Failure to investigate the technology’s environmental implications and regulate digital currency businesses may not only harm the environment, but it may also discourage future digital currencies from reducing their energy consumption and carbon emissions. The environmental impact of cryptocurrencies should not be pushed to the side as their popularity grows. Developers are looking for innovative ways to provide all of the benefits of digital currency without the large carbon footprint, as concerns about the environmental impact of blockchain-based currencies have grown.

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