It’s been in the news for a while, but over the past few months, coverage of Bitcoin has gone a bit crazy. With high levels of investment, including some high-profile backers, the value of Bitcoin has increased 6x in the past year! But what is not widely publicised are the environmental implications of this craze – are Bitcoin and other cryptocurrencies a bit too good to be true when it comes to the environment? Once again, we at curious.earth are putting on our detective hats in order to investigate this curious, digital phenomenon….
What is it?
Bitcoin is an example of a cryptocurrency. Cryptocurrencies are quite a complex topic to explain,so take a deep breath and bear with us as we break it down into as simple an explanation as we can…
A cryptocurrency is a decentralised, digital currency that is authenticated and secured by the decoding and coding of messages and data. Unlike normal currency, it is not held in a centralised place (e.g. a bank) and is authenticated by a blockchain – a shared transactional record. In principle it is therefore very very difficult to duplicate and/or close down.
In order to verify transactions made by people during sending and receiving a Bitcoin, mining takes place. Mining is where complex puzzles are solved using high levels of computational processing power. Miners receive a small amount of money as a transaction fee, incentivising this work. It’s often carried out in huge warehouses around the world.
With you so far….but what does this have to do with the environment?
Mining, by design, is phenomenally energy intensive, with the process requiring A LOT of computational processing power. A recent study by Cambridge University estimated that the energy consumption of Bitcoin (estimated to be 121.36 terawatt-hours (TWh) a year) is higher than that of Argentina and the Netherlands.
These friendly scientists have also translated this massive, incomprehensible figure into something we Brits understand – tea!!!
Many experts and environmentalists are therefore concerned that the cryptocurrency, by its very nature, is incompatible with attempts to reduce energy and use available energy more efficiently. And that’s not the only issue to contend with, there is also a more pressing problem of where all this energy currently comes from…
Location location location….
As mining of bitcoin is so energy-intensive, it tends to gravitate to locations where energy is cheap and most abundant. The vast majority of mining therefore currently takes place in China, where energy is cheap and plentiful. Bad news is that nearly 2/3 of all energy production in China is currently derived from coal, and will majorly derail the country from attaining its net zero targets. Not good when you think about energy efficiency and reducing carbon emissions across the world.
These figures are pretty shocking, and led to many environmentalists recoiling in horror when Elon Musk recently announced his major investment in Bitcoin. How can one of the leading innovators in green technology invest in such environmentally destructive technology?
Yeah, uh oh!
Buuttt, before you cry into your crypto shares and shake your eco-fists at every cryptocurrency advert at your local bus stop, there are some progessive steps being taken that could help this currency remain desirable and viable in a climate-friendly future:
- Mining is also beginning to take place in locations where energy production is from renewable energy sources. Iceland and Norway, where nearly 100% of energy is derived from geothermal and hydroelectric power, are also getting involved in the cryptomining mania. The cooler temperatures in the two countries also helps to naturally cool the computer servers. However, bear in mind this is only a real solution where renewable energy is in excess, and it often isn’t. Even renewable energy generation has environmental impacts when constructing panels/turbines etc so this is by no means a win-win solution!
- Bitcoin is not the only crypto currency in the market, and new entrants are utilising advanced technology to reduce energy consumption significantly. Cardano claims to be 4 million times more efficient than Bitcoin due to its ‘Proof of Stake’ blockchain that does not require the process to be validated by the amount of computer processing power that Bitcoin requires.
- There are also a number of specifically eco-cryptocurrencies that are not only more energy efficient, but also incentivise positive environmental behaviours. Currencies such as ECOcoin and Solarcoin can be used to buy trees, solar energy and encourage the growth of sustainable marketplaces.
In an attempt to summarise what is a complex and fast-changing topic, Bitcoin may make the environmentalists break out in a cold sweat in its current form, but that does not necessarily mean that cryptocurrencies in general are a bad idea. Reducing their vast energy consumption and identification of mechanisms to produce this energy from more renewable sources must be of priority if it is to be truly viable in a climate-friendly future. It’s important to also note that, despite the large energy consumption associated with cryptomining, a decentralized financial system may still be more energy efficient than the current status quo. Some experts argue profusely that when you take into account the energy required to process payments and in protection of our current financial systems, Bitcoin is actually more efficient! Research here indicates that Bitcoin mining’s estimated $/GJ expended is 40 times more efficient than that of traditional banking and 10 times more efficient than that of gold mining.
What we hope you’ve gained from this article is a greater understanding of the complexity of this debate. Ultimately, for Bitcoin and other crypto currencies to succeed in a climate-friendly future, these issues need to be brought to light and addressed using technology, innovation and people.