The demand for cryptocurrency, a valuable digital asset, has proliferated in the last few years. Cryptocurrency runs on a distributed public ledger called the blockchain and has derived its name since it uses encryption to verify transactions. Some of the best-known cryptocurrencies include Bitcoin (developed by Satoshi Nakamoto- a pseudonym for an individual/group of persons whose identity remains unknown), Ethereum (developed in 2015), Litecoin, Ripple, and so on. According to the founding white paper by Nakamoto, the main objective of cryptocurrency was to ensure quick, borderless transactions in the absence of high fees or barriers to foreign exchange that presently exists. However, many seem to be oblivious of it being a double-sided sword. While cryptocurrency entails several benefits such as economic transaction costs, diversification, and transparency, it also has some inflating costs on the environment, especially the mining process through which the new digital coins are created. Many forms of cryptocurrency, such as bitcoin, rely on highly energy-intensive mining. The Cambridge Bitcoin Electricity Consumption Index has estimated that bitcoin uses approximately 136.38 Terawatt-hours of electricity annually. The digital asset is also responsible for 114 million tons of carbon dioxide per year, which falls equivalent to the amounts generated by the Czech Republic. Moreover, Ethereum is also known to use around 112.6 Terawatt-hours of electricity per year. The reasons for a developing environmental catastrophe have been further well-established in the article.
EXCESSIVE USE OF ENERGY AND CARBON EMISSIONS
The rapid expansion of cryptocurrency has been trailblazing, but mining comes with a cost. Due to heavy competition, complex math algorithms required for transactions become a mind-numbing toil, and massive energy is consumed. With the subsequent increase in prices, the incentive to mine cryptocurrency increases. This creates a vicious loop that can spell trouble for the climate. Besides the crisis of gargantuan energy consumption, another problem emerges from the fact that there is no definitive statistic stating the ratio of renewable versus fossil fuel-powered electricity required for bitcoin mining. A 2019 study in the scientific journal ‘Joule’ said that Bitcoin generates between 22 and 22.9 million metric tons of carbon dioxide emissions yearly or equal to the levels caused by countries such as Jordan and Sri Lanka. Globally, power consumption by Bitcoin poses dire implications for climate change and hinders the path to achievement of the goals of the Paris Accord. It is also estimated that bitcoin can push global warming beyond 2 degrees Celsius.
EXPLAINED: WHY IS SO MUCH ENERGY NEEDED?
It all simmers down to the most intriguing question: Why do digital currencies, after all, require so much energy? Because the mathematical equations are solved through trial and error: the computers must constantly run to gather the best chance of finding the key, enable verification of the newest block of transaction and receive rewards with the latest batch of bitcoin. This entire process, referred to as mining, is done using powerful computers that can generate thousands, millions, or even billions of hashes per second, which inevitably demands tremendous energy.
WATER ISSUES AND E-WASTE
Blockchain-enabled cyber currency’s hydropower consumption raises some legitimate questions as energy is rendered from different sources such as coal, wind, solar, and hydro, each of which has associated water footprints. Miners mostly gravitate towards hydropower due to cheaper costs. A study by Cambridge University found that 58 per cent of bitcoin mined in a water-stressed nation like China further worsens the access of families and firms to these finite resources. It is often concluded that in the future, these two paradigms, including the financial system, might cease to co-exist as the efficacy will end up making the other obsolete.
Regarding E-waste, a new study revealed that bitcoin mining generated 30.7 kilotonnes of e-waste annually as of May 2021. According to United Nations, e-waste is the world’s fastest-growing waste stream amounting to 53.6 million metric tonnes, less than one-fifth of which is recycled. Furthermore, in the computational arms race, wherein only the best ASICs (Application-specific integrated circuits) win the competition for newer bitcoins, the existing courses are rendered obsolete with the emergence of more recent versions. Since they are hard enough to be feasibly mined, the ones that cannot provide profitable results eventually become garbage. To put it simply, if the average price in the past two months of $47000 holds, miners of bitcoin shall soon be orchestrating a dump of the same volume of small IT equipment whose toxic runoff can have severe ramifications on the soil as well as the water supply.
THE QUANDARY OF NFTs
NFTs or non-fungible tokens include digital files of photos, music, videos or artwork stamped with unique code strings. For example, Beeple, a famous digital artist, sold one NFT for more than $69 million. Ethereum creates NFTs, which generate 440 pounds of carbon, ten times higher than the average Ethereum transaction. Several artists have called NFTs an ‘ecological nightmare pyramid scheme’ because crypto art is environmentally unethical. The significant marketplaces for NFT art include the Nifty Gateway and Super Rare, which conduct their transactions through Ethereum, generating energy on the scale of a small nation. There are several alternative blockchains, but they are seen as less established or temporary, making them hardly appealing to art buyers. However, there are attempts to migrate Ethereum to a proof-of-stake system called Ethereum 2.0, which is more energy-efficient and supports NFTs.
WAY FORWARD TO IMPROVE THE STATUS QUO
Mitigating Bitcoin’s consumption problem is the most obvious path to achieving a green future. Myriads of start-ups have come up with novel ways to bring more environmentally friendly energy to Bitcoin, such as Hong Kong-based Liquid Stack’s aim to lower the temperature of mining rigs or Genesis Mining’s initiative to use renewable energy sources. The Crypto Climate Accord, supported by 40 projects, is yet another initiative aimed at decarbonising blockchains by using more energy-saving validation methods. Ethereum is also seeking to reduce its energy use by around 99.95 per cent by 2022. Other ideas for greening cryptocurrency include moving operations of bitcoins to oil fields where they can make use of methane gas and pipe it to generators. Some bitcoin mining is being planned for Western Texas due to the abundance of wind power. Other alternatives are in the course of development, such as proof of history, elapsed time, and proof of burn and capacity.
So what can help curb carbon emissions and accelerate the move toward a carbon-neutral future?
rapid implementation of methods such as a complete transition to proof-of-stake systems which do not require the mad dash to solve composite puzzles.
embracing pre-mining to evade wasteful computing.
introducing carbon credits or fees reflecting the sanctioned ability backed by the government for a company to cap its carbon emissions into the environment.
Authored by Jasleen Bedi
Edited by Mac Milin Kiran