Will Cryptocurrency Destroy the Environment?
“Bitcoin consumes more electricity than Argentina” — BBC
“Bitcoin devours more electricity than many countries” — Forbes
“Cryptos are virtual with real giant carbon footprints” — The Business Times
One of the biggest arguments against adopting cryptocurrency technology is the environmental impact. And they are right: mining power waste is a huge problem for some cryptocurrencies. Bitcoin mining alone is estimated to consume 0.5% of all global electricity, which is seven times Google’s total usage. It’s easy to see how some might consider Bitcoin a “dirty currency.”
Firstly, What Is a Cryptocurrency?
A cryptocurrency is a form of digital currency that is created, maintained, and secured with strong cryptography. The advantage of a cryptocurrency is that it’s entirely peer-to-peer and doesn’t require an intermediary like a bank.
Instead, everyone on the network has access to an evolving public record called the ledger. You can think of it as a giant public excel sheet, that records transactions between users. This might seem very hackable, but this is where the crypto in cryptocurrency comes in. A transaction can only be added to the ledger once a complicated cryptographic puzzle is solved and a consensus is reached by other users/computers on the network, and this takes a lot of computing power. So much so that the electricity needed to commit fraud by faking transactions makes fraud uneconomical and, therefore, it does not really happen.
Let’s say you want to buy some Bitcoin. You would connect to the network, and the computers on that network would validate your transaction by having a network user solve a cryptographic puzzle. Once this puzzle is solved, and the work is verified by a consensus of other network users, the transaction is added to a block of data, and that block of data is added to a chain of existing previous transactions, which is called the blockchain. The solving of complex cryptographic puzzles, the consensus of many users/computers on the network, and the energy required to do all that is called “proof-of-work.” It keeps the blockchain secure.
What’s All the Hullabaloo About?
The issue arose as the price of cryptocurrencies skyrocketed and the cryptographic puzzles got harder, which in turn required more computing power, resulting in more electricity being used. To the point that it’s estimated that 60%–80% of crypto mining revenue goes to paying just the electricity bills.
Why are people even bothering to mine cryptocurrencies anyway? The first user to solve one of these cryptographic puzzles gets rewarded with some newly minted cryptocurrency. At the time of this article, one Bitcoin is worth $38,831.56 US dollars. And it’s these astronomical prices that drive crypto miners. There are crypto miners all over the world in fierce competition to build bigger and more powerful crypto mining farms (many interconnected specialized computers) running at full speed to be the first to validate a transaction. And here lies the issue. The fierce competition and the increased computing power needed to solve the cryptographic puzzles are driving much of the concern about the environmental impact.
Proof-Of-Work vs. Proof-Of-Stake
There’s another way of verifying transactions, and it’s called “proof-of-stake.” Instead of making people show their work and expend energy on verifying transactions, individuals would instead put up some of their own coin as collateral, or “stake.” Therefore, if people tried to falsify transactions on the blockchain, their coins would be taken away. With coins as collateral, there’s no mining, which means reduced use of electricity to verify transactions. This is not just a theory. Some cryptocurrencies have already made the switch, such as Cardano, which is almost 4,000,000x more efficient than Bitcoin per transaction.
Is cryptocurrency mining worsening climate change? It doesn’t have to by default. Cryptocurrency technology is still evolving. With the introduction of proof-of-stake, we can see an evolution in how cryptocurrency will work in the future. This will not only help with efficiency but also reduce the need to use so much electricity. These technologies are not immutable and they are not in their final form. In my humble opinion, the discussion is needed, but it needs to be more nuanced.