Digital currencies, especially Bitcoin, have been a hot topic in many fields, but there is still a lot of confusion on what exactly their purpose is, since they are not physical or tangible and have no underlying assets to give them value. Working in both the blockchain technology and environmental spaces, I decided to explore the topic of digital currencies and their effects on our planet. From an environmental perspective, it is important to focus on how these currencies are created and stored. In this sense, a bitcoin can be seen as just a digital representation of the computer power needed to make a single coin, which is referred to as its “proof-of-work”.
The main environmental concern is that this process requires an incredible amount of computer power, since the creation of new Bitcoin is essentially a race between computers to solve a special equation or puzzle by entering a correct sequence of numbers, which creates a new block or coin as a reward. In 2021 BBC reported that Bitcoin, the most well-known cryptocurrency network, uses 121 Terawatt-hours of electricity each year, more than the whole country of Argentina. In addition, as the price of Bitcoin increases, the puzzle becomes harder to solve, leading to even more computing power needed for the exact same amount of transactions as the “mining” process becomes less efficient and also outdated.
Another environmental effect of crypto is it’s connection to fossil fuels. In a report by CNBC, bitcoin mining creates around 35.95 million tons of carbon dioxide emissions each year, which is about the same amount as the carbon emissions from the entire country of New Zealand. (Investopedia) This relationship between digital currencies and fossil fuels is obviously something that is concerning for anyone who is supporting these currencies.
There are also non-fungible tokens (also called NFT), which are unique digital assets, usually digital versions of popular artwork and media, that give ownership of the digital version of that asset to whoever purchases the token. Similar to bitcoin, NFT’s also have negative environmental effects, the most notable example being “Space Cat,” an NFT that’s basically a GIF of a cat in a rocket heading to the Moon. Space Cat’s carbon footprint is equivalent to an EU resident’s electricity usage for two months, according to the Verge.
There is obviously still a lot of work that needs to be done before digital currencies and NFT’s become environmentally friendly. One option to make cryptocurrencies more environmentally friendly is to look into alternative processes of rewarding them to people instead of the traditional “proof of work” process mentioned earlier. The most popular other option is something called proof of sake, which involves less energy consumption since it eliminates the need to spend energy on duplicate processes (for example a computer attempting to solve the exact same puzzle). It is also important to note that there are many other cryptocurrencies that use natural energy, such as Solar Coin, and volcano energy in El Salvador.
Whether you are supporting cryptocurrencies or not, it is unarguable that they have a large impact on our environment. If we do not consider the environmental effects of these cryptocurrencies and attempt to regulate them in order to reduce the potential harm from these effects such as carbon emissions, then new currencies that will be created are not going to consider their sources of energy or anything else related to helping prevent issues such as climate change in their design.
Sources and Suggested Reading
Browne, Ryan. “Bitcoin's Wild Ride Renews Worries about Its Massive Carbon Footprint.” CNBC, CNBC, 9 Feb. 2021, www.cnbc.com/2021/02/05/bitcoin-btc-surge-renews-worries-about-its-massive-carbon-footprint.html.
Calma, Justine. “The Climate Controversy Swirling around NFTs.” The Verge, The Verge, 15 Mar. 2021, 9:51am EDT, www.theverge.com/2021/3/15/22328203/nft-cryptoart-ethereum-blockchain-climate-change.
Criddle, Cristina. “Bitcoin Consumes 'More Electricity than Argentina'.” BBC News, BBC, 10 Feb. 2021, www.bbc.com/news/technology-56012952.
Hernandez, Joe. “El Salvador Plans To Use Electricity Generated From Volcanoes To Mine Bitcoin.” NPR, NPR, 11 June 2021, www.npr.org/2021/06/11/1005231250/el-salvador-plans-to-use-electricity-generated-from-volcanoes-to-mine-bitcoin.
Howson, Peter. “Bitcoin Isn't Getting Greener: Four Environmental Myths about Cryptocurrency Debunked.” The Conversation, 17 Feb. 2021, theconversation.com/bitcoin-isnt-getting-greener-four-environmental-myths-about-cryptocurrency-debunked-155329.
Reiff, Nathan. “What's the Environmental Impact of Cryptocurrency?” Investopedia, Investopedia, 19 May 2021, www.investopedia.com/tech/whats-environmental-impact-cryptocurrency/.
“What Is ‘Proof of Work’ or ‘Proof of Stake’?” Coinbase, Coinbase, www.coinbase.com/learn/crypto-basics/what-is-proof-of-work-or-proof-of-stake?utm_source=google_search_nb&utm_medium=cpc&utm_campaign=9943088770&utm_content=127915792732&utm_term=&utm_creative=523247202125&cb_device=c&cb_placement=&cb_country=us&cb_city=open&cb_language=en_us&gclid=Cj0KCQjw2tCGBhCLARIsABJGmZ7tbQClx3s-hdNSpaNtuLct1ziA69lAt0pFOuyBNR4oScJgzgdk-94aAkHXEALw_wcB.