• Mya Chew

Crypto vs the environment

Bitcoin, Dogecoin, and Ethereum have been the hottest topics during the past few months, especially in April 2021 when Bitcoin reached an all-time high of $63,000.[1] Many people with the mindset of making quick and easy money have been excitedly trading and investing in cryptocurrency. Even Elon Musk, the founder of Tesla and the second richest man in the world,[2] had planned to accept Bitcoin as payment![3]


The technology behind Bitcoin is called blockchain technology. When a transaction is requested, it is broadcasted to the whole network. The quality of the transaction is verified by networks of individual computers. They must all come to a consensus before the transaction can proceed. Verified transactions are packaged into blocks. These blocks can store any kind of data, making blockchain technology widely applicable. Each block is marked by hashes, which are serial numbers or barcodes. Hashes are created using mathematical formulas and ensure that the contents of the block cannot be changed. As each blockchain transaction goes through, an “inventory” that uses hashes is continuously updated. The chain then becomes an incorruptible history of all transactions.[4]


So how is Bitcoin affecting the environment? The damage to the environment comes from the mining of Bitcoin. Bitcoin mining is the process by which new bitcoins are entered into circulation. This requires extremely sophisticated computers that solve extraordinarily complex math problems.[5] The people involved in this process, who are referred to as “miners”, receive bitcoins as their reward.


Cryptocurrency mining farms are often set up in locations where power is the most affordable, most notably in north-western China’s Xinjiang Province,[6] where coal is a very abundant resource. These computers consume large amounts of electricity, which is a big problem, especially since burning coal for energy results in tons of carbon emissions. According to the latest calculation from Cambridge Bitcoin Electricity Consumption Index (CBECI), Bitcoin mining uses up 133.68 terawatt-hours a year on electricity. To put this into perspective, this place’s usage of electricity for Bitcoin mining is just above the electricity consumption of the entire country of Sweden![7] Moreover, because the computers needed to mine Bitcoin are expensive, some miners turn to cheaper computers that are less energy efficient. At this rate, Bitcoin alone could increase global warming past 2 degrees Celsius in the next three decades![8] Of course, we also cannot ignore the electronic waste created, as the specialized machines used for mining bitcoin burn out easily.


The demand for Bitcoin has skyrocketed recently due to a few factors. Firstly, many large payment firms are warming up to the idea of using cryptocurrency. PayPal, for example, now allows customers to buy, hold and sell Bitcoin directly from their PayPal accounts.[9] Secondly, central banks are also starting to embrace cryptocurrency by working on their own Central Bank Digital Currency (CBDC). China, for instance, has developed a cyber Yuan that is not linked to the dollar-dominated global financial system.[10] Lastly, the economic chaos brought about by the Covid-19 pandemic has caused governments to use an aggressive expansionary monetary policy, printing lots of money for their economies. This could very well drive up inflation. Many people have turned to cryptocurrency as a long-term hedge against inflation and a volatile international community.


It seems that the demand for Bitcoin and other cryptocurrencies is here to stay. Without quick action to switch to more renewable energy sources, our environment will continue to suffer at the hands of this blockchain technology.


Bibliography:


[1] https://www.cnbc.com/2021/04/13/bitcoin-hits-new-all-time-high-above-62000-ahead-of-coinbase-debut.html


[2] https://www.forbes.com/billionaires/


[3] https://www.cnbc.com/2021/02/08/tesla-buys-1point5-billion-in-bitcoin.html


[4] Broader Perspectives, 2018 Year Review


[5] https://www.investopedia.com/tech/how-does-bitcoin-mining-work/


[6] https://www.independent.co.uk/climate-change/news/why-bitcoin-bad-environment-mining-b1846911.html


[7] https://www.ft.com/content/1aecb2db-8f61-427c-a413-3b929291c8ac


[8] https://www.ft.com/content/1aecb2db-8f61-427c-a413-3b929291c8ac


[9] https://theconversation.com/bitcoin-why-the-price-has-exploded-and-where-it-goes-from-here-152765


[10] https://www.wsj.com/articles/china-creates-its-own-digital-currency-a-first-for-major-economy-11617634118

 
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