Cryptocurrency was a relatively obscure term and was not really spoken about out loud ten years back. But now it’s a whole new ball game with the cryptocurrency of different origins and names having a worth up to 70,000 dollars a coin at its peak. What is the basic definition of this cryptocurrency? It is a virtual currency that uses complex encryption algorithms. It is highly decentralized, and it is highly secure, and has a zero chance of being counterfeited.
The most famous one is Bitcoin. It was made by a group of unknown people, and all there is to remember them by is the pseudonym: Satoshi Nakamoto. Bitcoins which are now synonymous with the word cryptocurrency, have taken the world by storm. From relatively obscure to a full-blown phenomenon, especially after the series of tweets by Tech Giants are turning heads and appear to be a brilliant investment opportunity for many people. The investment in them is one that can have a huge upside and great returns. But will they make paper currency and coins a thing of the past? And what are the effects of cryptocurrency on the environment?
But before we dive into it, we must have a cursory knowledge of how the economy works. Did you ever find it odd that you give a person, let’s say in Starbucks, a piece of paper, and he gives you an extraordinary latte or a cappuccino, and you both walk away happy with this exchange? That paper bill represents the amount of gold your country has in its reserves, and this amount of gold represents the strength of your paper bill—the National Bank or Treasury checks and releases these bills into circulation.
Ever since cryptocurrency hit the market, people have been divided. The curiosity of people led them to realize that generating the bitcoin is a process that requires a very high expenditure of energy. This divided people into two groups. One group who was sick of these virtual coins increasing the prices of the electricity and also polluting the environment and wanted a ban on them. Other people who found it to be a very good investment wanted the government to reduce taxes on this investment so more and more people can get involved in this trade.
Now comes the big question: Is the cryptocurrency here to stay, or is it just a phase. Will it really take over all the transactions in the future? A few tweets by the co-CEO of Tesla, Elon Musk, made bitcoin very big when he told his followers that they could buy his futuristic electric cars by paying in bitcoins and that company will not convert them into paper money but will hold them. These tweets made the bitcoins value skyrocket in a couple of days to an incredible new limit.
But on Wednesday, May 12, 2021, the CEO said that he would not be taking bitcoins as a payment. He stated his reasonthat the rigs that are used to generate these coins consume high quantities of fossil fuels to run, which ultimately damages his vision of a safe planet that he wants to achieve by his electric cars. These last grim tweets made the cryptos plummet 17 percent immediately, but Elon also promised to invest 1.5 billion in cryptos, making them a viable option for payment of his cars.
How does Bitcoin work?
There is one clarification that must be made when studying these virtual currencies. That is the difference between two terms: blockchain and cryptocurrency. Blockchain is the technology on which the cryptocurrency relies, and the simplest way to put it is that it is a ledger that keeps track of every bitcoin that is being generated and every transaction made. The blockchain links a huge amount of records, and the data in it can never be altered, which makes it one of the most robust kinds of security for cryptocurrency and other virtual assets.
Now what actually happens is that a bunch of miners are tasked to add a new block of bitcoin every 10 minutes. They run the program that runs the bitcoins, and they have to find out the correct value of the block component called the “nouce.” Now, as every member is trying to guess the proper value, the first miner that gets it right is allotted a fixed amount of coins, and the other miner who was trying to add the next block discard their block, and they validate that the block that has been approved is genuine and it has stuck with all the rules. This is the proof of work, and now the cycle starts again.
This is why sometimes getting a block right is equated with winning the lottery because one has as little chance in the lottery to figure out the correct number. The mining process relies on electricity. And the electricity depends on the burning of fossil fuels. This makes it very environment unfriendly. And as the fuel price raises so does the bitcoin prices. So far, China is the place that records the greatest amount of blockchain operation in the world, accounting for 75 percent of all that is happening in the world. Rural China is one of the best places with lots of lands to develop and relatively low electricity costs.
Now we will see how bitcoin is harming the environment. The bitcoin production runs on a proof of work algorithm; this algorithm causes the miners to minimize the need to trust each other. The machines that do this particular work consume a lot of energy and require a lot of fuel.
Similar is the case with NFTs. NFTs (Non-fungible tokens) are unique digital collectibles stamped by a unique code that help you track down the owner of the items. They are getting popular, and Twitter CEO’s tweets can be one example of the works. These NFTs can be in any shape, like in the shape of a cat GIF, but the energy expenditure in making a NFT is very, very high. And when I say high, I mean it is an equivalent of a house’s monthly energy expenditure.
There are firms that are buying decommissioned powerhouses and then using them as centers of mining. This much energy consumption causes significantly higher carbon emissions, and this is how cryptocurrency is a threat to the environment.
Bitcoin Energy Consumption and Carbon Emissions
According to Digiconomist's estimate, some 232 MW of energy is consumed by the bitcoin network worldwide, and in this, some 111 MW is consumed just in China. HydropowerminimizeTwenty-four reduces the pollution, but the rest uses fossil fuel to create the power necessary to produce the required energy. The carbon emissions divided separately for every region might be difficult, but some rough estimate puts it in the range of 480-500 g CO2 eq per kWh of carbon emissions. This shocking revelation is probably the cause of the U-turn made by the CEO of the Tesla cars, who initially permitted using these bitcoins to purchase his cars but then later put brakes on it and retracted the permission to buy his cars via bitcoin.
As we have seen in this article before that most of the mining is done in China, and most of the energy production in China is by burning coal. And it was estimated that the amount is carbon emissions produced by bitcoin mining is 35.95 million tons which are equal to the emissions by the country of New Zealand. Bitcoin mining also produces electronic waste as the hardware becomes obsolete. The bitcoin network generates between eight and twelve thousand tons of electronic waste every year.
Now we will discuss the good old currency banknotes that have been here for as long as you can remember. As I have mentioned at the beginning of this article that a currency bill is the representation of the amount of gold reserve in the central bank of that particular country. The benefit of this note is that you don’t have to actually carry your goods like in the barter system.
It has many advantages, but it also has disadvantages like devaluing and using paper, which makes them also environmentally unsafe. Paper money was developed due to the fluctuating prices of different metals and also to adjust to the expanding economy. The ink is not very durable, so the banknotes have to continuiously be printed.
You must have heard the old adage that money doesn’t grow on trees, but the paper is certainly a deforestation by-product. Deforestation contributes to 20% of annual global greenhouse gas emissions and water pollution to some extent. 24 trees are chopped to make 1 ton of standard office paper, and according to the World Wildlife Fund estimates, about 400 million tons of paper is produced across the world each year. Some of this paper is used in the printing of banknotes.
And, let’s not end this here. Manufacturing, printing, distribution, and disposal of paper involves 200 kilograms of carbon dioxide per tonne of paper. In 2018, the pulp and paper industry contributed to about 0.5% of the total industrial carbon dioxide emissions in the U.S.A alone. So, now you can imagine the number of trees that are being cut and carbon dioxide released into the atmosphere to print these notes.
Now that all has been said and done, as we have seen that the energy expenditure of the cryptos is very, very high, and rather than hating on the new currency, there must be steps taken to reduce the energy consumption so that they can be made more and more environment friendly.
One such step could be the Mina protocol. Mina protocol is a gateway between the real world and the crypto world, and it is the lightest blockchain ever created. It is just the size of a couple of tweets, about 22KB. The normal blockchains are some 300 GBs. This light blockchain allows participants to verify and sync in the network quickly. The other blockchains are very heavy, and they need an intermediary to run the nodes, but Mina is so compact it doesn’t need a intermediary node.
And with the use of SNARK-powered decentralized apps or Snapps, one doesn’t have to transfer their data to the heavy player in exchange for mere participation in the crypto world. Snapps keeps you in control by validating and sharing proof of their data. Mina is powered by participants and has an uncapped number of block producers. Now, as it is lighter than the other blockchain, it uses less power and lower carbon emission.
We know that the proof of work algorithm is the algorithm that provides the bitcoins with incredible security and is the reason for consensus between miners, but it takes a lot of energy to run. Other software like the proof of stakes has been developed that can be used instead of proof of work and can drastically reduce energy consumption.
Attempts have been made in making the bitcoin green. It means that more incentives will be given to the miner who will use environmentally friendly energy sources rather than fossil fuels. And it has been claimed by blockchain analysis firms that the origin of the bitcoin can be traced to whether a eco-friendly fuel was used or not in mining that particular bitcoin. With investments from people like Elon Musk, the future of crypto could become greener and safer for the environment but how long are we willing to wait?
Nida Riaz is a freelance blogger based in Pakistan. She started writing about her passion for the environment when the world came to a stop in early 2020.