As cryptocurrency becomes mainstream, its carbon footprint can’t be ignored

News: Cryptocurrency has expanded rapidly. With its increased popularity, problems of environmental sustainability have emerged. These are related to the digital mining of Cryptocurrency, esp Bitcoin, as it creates a massive carbon footprint due to the staggering amount of energy it requires.

What are the events that indicate increased adoption of Cryptocurrency?

– Goldman Sachs started trading Bitcoin futures (agreeing to transact the coin at a predetermined future date and price).

– Tesla invested $1.5 billion in Bitcoin. PayPal announced in March 2021 that it would allow its U.S. customers to use cryptocurrency to pay its millions of online merchants.

– In September, El Salvador became the first country to make bitcoin legal tender.

– Big-name brands like AT&T, Home Depot, Microsoft, Starbucks and Whole Foods now accept bitcoin payments

What is the global carbon footprint of the Bitcoin?

– As per Bitcoin Energy Consumption Index from Digiconomist, an online tool, the carbon footprint of Bitcoin, is equivalent to that of New Zealand, with both emitting nearly 37 megatons of CO₂ into the atmosphere every year.

– Bitcoin’s total annual power consumption to be around 204.50 terawatt-hours, equivalent to the power consumption of Thailand.

How is Cryptocurrency contributing to carbon emissions?

Transactions in Bitcoin are tracked through a public ledger consisting of a network of computers around the world: the blockchain.

Mining allows this validation to take place, which is an energy-intensive process.

– In May 2021, at least half of China’s significant share of bitcoin mining was located in the coal-rich province of Xinjiang,

Minting of digital artworks as NFTs (Non-Fungible Tokens) is also done through Ethereum Blockchain, through a process called proof-of-work (PoW), which establishes its unique identity.

– The carbon footprint of a single Ethereum transaction as of December 2021 was 102.38 kilograms of CO₂

– The electrical energy footprint of a single Ethereum transaction is about the same amount as the power that an average US household uses in 8.09 days.

Why the environmental challenges wrt Cryptocurrencies are likely to increase?

There is only a limited supply of Bitcoin available. So, as more bitcoin is mined, the complex maths problems needed for transactions get harder to solve, demanding more energy in turn.

Incentives attached to mining: 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 means that as the price of Bitcoin continues to rise, so will the incentive to mine the cryptocurrency.

Is the criticism around Bitcoin energy usage right?

It’s important that any valid criticism of Bitcoin considers the broader perspective around energy usage.

Bitcoin’s energy transparency places it in a better position than other, more opaque energy-consuming industries such as the banking industry. As per reports, the energy consumption of Bitcoin is less than half that produced by the banking and gold industries.

Unlike traditional currency or gold, Bitcoin is 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.

Also, there is often an assumption that the energy used by miners is either stolen from more productive use cases or results in increased energy consumption. 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. For instance:  El Salvador, has announced the use of geothermal energy to power its bitcoin mining.

Source: This post is based on the article “As cryptocurrency becomes mainstream, its carbon footprint can’t be ignored” published in Down to Earth on 14^th Jan 2022.