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What is Cryptocurrency?
Cryptocurrency, or crypto, is a digital currency used to buy goods and services. It is commonly decentralized, meaning users do not have to go through a bank or use their name. Cryptocurrency places the power and control in the user’s hands, rather than banks, financial institutions, and governments.
Cryptocurrency is not issued in paper form but is bought and exchanged through a public digital ledger using a blockchain. Blockchains comprise blocks, linking a growing list of digital records together and containing transaction data and a timestamp.
A blockchain is autonomously managed through a peer-to-peer network across many computers, labeled with a cryptographic hash, known as a hash tree, or Merkle tree, named after Ralph Merkle, who patented it in 1979. The hash tree facilitates secure and efficient verification of large amounts of data, which pass between computers.
Crypto mining refers to the process whereby new cryptocurrencies, such as bitcoins enter circulation. The process requires highly sophisticated hardware to solve highly complex mathematical computer problems, sometimes taking years to solve. The first computer to solve the problem is awarded the next block of bitcoins and the process begins again.
Cryptocurrency History and Market Share
There are two types of cryptocurrencies: Bitcoins and Altcoins. Bitcoin, founded in 2009, is the original and still the most popular cryptocurrency. It is based on the first decentralized digital currency, created by someone using the alias Satoshi Nakamoto, whose real identity remains unknown.
Altcoins include Litecoin, Dogecoin, Dash, Bitcoin Cash, Ethereum, Binance Coin, Tether, Cardano, Solana, XRP, Polkadot, and Shiba Inu.
Each cryptocurrency has its own benefits and drawbacks, as well as market share.
Bitcoin is estimated to have a market cap of over US $1.17 trillion and has become a household name. Five years ago, a single bitcoin could be bought for US $500, but by October 2021, the price had reached US $62,000.
Dogecoin, with a market cap of over US $38 billion, was started as a joke in 2013, but thanks to endorsements by billionaire Elon Musk, CEO of Tesla, its popularity has escalated.
Unlike bitcoin, Dogecoin has no limit to the number of Dogecoins that can be created. Due to this, its price has been extremely unstable. In 2017, a Dogecoin could be bought for US $0.0002, but in October 2021, it had reached US $0.29.
Environmental Impact of Cryptocurrencies
Cryptocurrencies have a huge environmental impact because of the vast amount of energy needed to run the computers necessary for mining. Mining solves complex mathematical problems using specialized computer hardware such as Application Specific Integrated Circuits (ASIC).
According to the Sierra Club, Bitcoin’s annual energy consumption is comparable to entire countries such as Argentina or Ukraine. Within the next 30 years, Bitcoin alone could raise global temperatures by 2 ºC. (SierraClub.org 2021).
One problem is the correlation between high fossil fuel producers, such as China, the USA, India, Russia, and Australia, also being some of the highest cryptocurrency users.
The USA has the highest trading volume on stock exchanges, followed by Russia, Nigeria, the EU, and China.
India tops the list of having more than 100 million people that own cryptocurrency, followed by the USA with 27 million, then Russia with 17 million, and Nigeria with 13 million (C-sharpcorner.com 2021).
Controlling electricity consumption for mining is exacerbated due to the autonomous nature of crypto, meaning it is difficult to monitor or regulate.
Satoshi Nakamoto, the anonymous Bitcoin creator who mined more than 22,000 blocks, is believed to be the biggest single account holder.
The Digiconomist Bitcoin Energy Consumption Index estimates it takes 1544 kWh of power to produce just one Bitcoin or 53 days of power for an average American household (Cnet.com 2021). Therefore, mining 22,000 blocks would use 33,968,000 kWh, the equivalent of over 3,194 years of energy for an average American household; a phenomenal amount of energy.
Why Crypto Mining is so Energy-Intensive
Cryptocurrency mining is energy-intensive for several reasons.
Firstly, rigs containing powerful graphics cards, or GPUs, are used to handle the calculations, and these require high-wattage power.
Secondly, the rigs run 24 hours a day, with each crypto business running hundreds or even thousands of rigs in a single location.
Rigs generate power and heat, so with thousands of rigs running, cooling is needed using built-in fans and external cooling. These require even more electricity, which in turn, places strain on nearby power stations.
Paris Climate Accord, COP26 and Global Responses to Cryptocurrencies
World leaders agreed to take action to decarbonize economies by honoring agreements made in the 2015 Paris Climate Accord, aimed at keeping the global temperature rise below 2 ºC (pre-industrial levels).
The follow-up was the UN climate change conference, COP26, which took place in Glasgow 2021. Participants made no specific statements on energy-intensive crypto, but instead only hinted at possible future changes to global financial systems.
Rishi Sunak, British Chancellor of the Exchequer, opened COP26 finance day by announcing “the entire global financial system will be rewired for net-zero’ carbon emissions, including ‘mandatory sustainability disclosures.”
Looking at how cryptocurrency is used and powered is probably overdue a serious review by most global world leaders and policymakers. Few leaders have policies in place specifically aimed at tackling or improving crypto electricity consumption.
Is Decarbonizing Cryptocurrency Possible?
Proponents of cryptocurrency have argued it is about freedom and nothing more than creating assets similar to gold and a decentralized currency for the common good.
However, this may be misleading when energy use is factored in, combined with the fact a decentralized system may be more susceptible to cyber-attacks.
Elon Musk, tweeted in May, “I strongly believe in Crypto, but it can’t drive massive increase in fossil fuel use, especially coal.”
He also announced Tesla would no longer accept Bitcoin for purchases, which saw Bitcoin’s value drop.
Later the same month, Musk tweeted again ‘Spoke to North American Bitcoin miners. They committed to publish current and planned renewable usage & to ask miners WW to do so. Potentially promising.’
Bitcoin’s share value shot up again to US $39,500.
The Crypto Climate Accord comprises 150 firms from the crypto, blockchain, tech and energy industries, one of whom argued at COP26 that decentralization is a ‘local, small mindset versus a global vision of a decentralized World’, which provides an opportunity to learn.
Germanwatch, a non-profit environmental group, also suggested there are misconceptions about Bitcoin’s mining activities, with Corner stating: “of course there are pitfalls as with any new industry, but we are on the way to creating more green solutions.”
What those green solutions may be, remains unclear, because there is currently a huge global deficit in renewable electricity, such as solar, wind, geothermal, tidal, biomass and green hydrogen.
Renewable energy deficit is also a prime consideration when discussing why the world is no longer on course to keep global temperatures below 2 ºC.
References and Further Reading
Global Impact of Crypto Trading (2021) in Forexsuggest online https://forexsuggest.com/global-impact-of-crypto-trading/
How Does Bitcoin Mining Work? (09.21.2021) E.Hong, Mansa.J in Investopedia online. https://www.investopedia.com/tech/how-does-bitcoin-mining-work/
Top Ten Cryptocurrencies in November 2021 (11.01.2021) Tretina.K, Schmidt.J in Forbes online https://www.forbes.com/advisor/investing/top-10-cryptocurrencies/
Environmental Impacts of Cryptocurrencies (03.26.2021) Dernham.K in Sierra Club Pennsylvania online https://www.sierraclub.org/pennsylvania/blog/2021/03/environmental-impacts-cryptocurrency
Top 10 Countries With the Most Cryptocurrency Holders (10.21.2021) Chand.M in c-sharpcorner online. https://www.c-sharpcorner.com/article/top-10-countries-with-the-most-cryptocurrency-holders/
Here’s how much electricity it takes to mine Bitcoin and why people are worried (08.31.2021) Gonzalez.O in Cnet online. https://www.cnet.com/personal-finance/crypto/heres-how-much-electricity-it-takes-to-mine-bitcoin-and-why-people-are-worried/
The Paris Agreement (2021) in UNFCCC. https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement
Here’s why mining bitcoin may be about to get a whole lot easier (06.24.2021) Miller.A (video) in CNBC online. https://www.cnbc.com/video/2021/06/24/heres-why-mining-bitcoin-may-be-about-to-get-a-whole-lot-easier.html
Here’s why bitcoin miners should pay attention to COP26 (11.03.2021) Alper.T in CryptoNews online. https://cryptonews.com/news/heres-why-bitcoin-miners-should-pay-attention-to-cop26.htm
Crypto sustainability and green solutions highlighted at COP26. (11.09.2021) Farren.T in cointelegraph online. https://cointelegraph.com/news/crypto-sustainability-and-green-solutions-highlighted-at-cop26
Access to Energy (2020) Ritchie.H, Roser. M in Ourworlddata online. https://ourworldindata.org/energy-access
Elon Musk says he talked to ‘North American Bitcoin Miners’ sending bitcoin price surging. (05.25.2021) Bursztynsky.J. In CNBC online. https://www.cnbc.com/2021/05/24/bitcoin-price-soars-after-elon-musk-tweet-on-sustainability-efforts.html
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