WHAT IS A CRYPTOCURRENCY?
Cryptocurrency is decentralized digital money, and, based on blockchain technology. The most popular versions, you have probably heard of, like Bitcoin, but according to CoinLore there are more than 5,000 different cryptocurrencies in circulation. That cryptocurrency is decentralized means that its control and regulation is not managed by a country or a bank, as is the case for regular currency – aka there is no central body of authority that maintains or regulates its value, furthermore there is no physical cryptocurrency, it is all online. Thus the cryptocurrency represents one global value completely regulated by market forces and investment activity.
With a cryptocurrency you can purchase goods and services, if the establishment accepts it, however, most people invest in cryptocurrencies like they would in other assets like stock or gold. And while many news sites often include stories about people who have hit the jackpot and gotten rich selling crypto, the systems are high-risk, unregulated, and require either a huge amount of luck, or research to actually get rich (just fyi).
One key aspect that we will be talking a lot about in this video is crypto mining. To put it shortly, cryptocurrency mining is a term that refers to the online process of gathering cryptocurrency as a reward for work that you complete. To be more precise, crypto mining is the process of gaining cryptocurrencies by solving cryptographic digital equations. This process involves validating data blocks and adding transaction records to a public record (ledger) aka a blockchain. And it is in the mining of crypto that a lot of the impact can be found.
Now we will be talking about cryptocurrencies as a whole in this video, but I’ll also include some studies that are specific to Bitcoin, which was also the currency that gave birth to the whole movement of crypto. In April of 2011, the price of one Bitcoin was $1; but in April 2021, it reached an all-time high of almost $65,000. As of September 2021, the world’s Bitcoin had a collective value of $903 billion. And this development encapsulates the growth of the movement pretty well I think.
According to Investopedia, there are about 1 million Bitcoin miners in the world. When Bitcoin was first introduced in 2009, mining one block would earn you 50 Bitcoins. In November 2020, the reward for one block was 6,25 Bitcoins, however, the value of which was $17,900 per Bitcoin.
THE ENVIRONMENTAL IMPACT OF CRYPTO
Now there are several aspects of the environmental aspect we could be looking at today, one aspect is e-waste. When we use electronics, we, at some point, also have to discard electronics. And that is also true for cryptocurrencies. The e-waste related to Bitcoin is more than 11 tons of e-waste a year, which is in no way insignificant. However, it only gets worse from here, so strap in.
The big impact of anything online is power. We need power to run, keep, and store data on the internet, and that is no different for crypto. Actually, you could make the case that it is even worse for crypto. Mining specifically requires a lot of power, because massive amounts of data have to be processed. But, how do you figure out how much electricity crypto mining requires?
The University of Cambridge Bitcoin Electricity Consumption Index has come up with a pretty accurate estimate of how much electricity cryptomining uses (these calculations account for the impact of Bitcoin, specifically). You start by looking at the currency’s daily “hashrate” – aka how fast computers on the network can perform their calculations. Then you make some assumptions about the computer equipment the miners are using (which is safe to assume that it is pretty up to date, to make the mining efficient).
Then you add an estimate of the average electricity prices, as well as the latest price of the cryptocurrency, and then you get an estimated electricity consumption rate. The estimated electricity consumption of Bitcoin, calculated by the University of Cambridge found that the global Bitcoin network consumes 121 terawatt-hours annually, which is more than all of Argentina, or more than the consumption of Google, Apple, Facebook, and Microsoft combined.
However when looking at impact, we can’t just look at power consumption, the most important piece of information is where that power comes from. So to get a more accurate idea of the environmental impact of crypto, we have to know where the miners are located, and how they get their power. According to Cambridge, when cross-referencing the Bitcoin miners IP addresses with the local mix of power sources, studies found that 62% of global miners rely on hydropower for at least some of their electricity; 38% use some coal, and about 39% use at least some combination of solar, wind, or geothermal.
The average Bitcoin transaction also has a rather large impact, as it consumes over 1700 kWh of electricity, which is almost twice as much as the monthly average of a US home. Is the impact of cryptocurrency inherently big? No, actually not.
But some Bitcoin mining operations have teamed with struggling fossil fuel power plants, that would otherwise have closed down, and that does indeed increase carbon emissions.
In 2020, China controlled over 65% of the global processing power that runs the Bitcoin network, because many miners have taken advantage of China’s cheap electricity that primarily comes from hydropower and coal power plants. However, in 2021, China doubled down on restrictions of cryptomining, because with such a large percentage of global miners residing in China, it would be difficult to achieve their goal of being carbon neutral by 2060. So now many Bitcoin miners are moving their operations. Some particularly popular destinations are Kazakhstan, which rely heavily of fossil fuels for power, as well as the US, where similar problems would arise.
However, on top of the impact of cryptocurrencies, the technology opens the door for new formats, and new ways to use the blockchain system, and in terms of the impact it is essential that we talk about that as well.
Since December 2021, a new phenomenon in the art world has added to the environmental concerns about cryptocurrencies: NFTs. These are non-fungible tokens—digital files of photos, music, videos or other kinds of artwork stamped with unique strings of code. People can view or copy NFTs, but there is only one unique NFT that belongs to the buyer and is stored on the blockchain and secured with the same energy-intensive proof of work process as cryptocurrencies. NFTs are selling for hundreds of thousands of dollars; Beeple, a digital artist, sold one NFT for more than $69 million.
Ethereum, the second most popular cryptocurrency after Bitcoin, creates the NFTs. The average NFT generates 440 pounds of carbon—the equivalent of driving 500 miles in a gas-powered car—producing emissions 10 times higher than the average Ethereum transaction.
HOW CAN CRYPTO BECOME MORE SUSTAINABLE?
There is an inherent problem with making cryptocurrencies more sustainable, and that is the fact that there is no general oversight, with a decentralized system, it is, in many cases, up to the individual mining operation if they want to go green, and for many, there isn’t an economic benefit in doing so. Many miners have already invested in locations, equipment, or has made deal with fossil fuel plants, so suddenly changing that impact can prove to be difficult.
Some crypto mining companies are working together to reduce emissions, Elon Musk is involved in this effort as well. The Crypto Climate Accord is an initiative supported by 40 projects with a collective goal of running blockchains on 100% renewable energy by 2025.
Ethereum is aiming to reduce its emissions by 99% by 2022 through a validation system called proof of stake, which smaller currencies have already done.
Overall I also see a lot of the carbon reduction initiatives surrounding cryptocurrencies being based on carbon offsetting, which in and of itself would make this industry carbon neutral, ever. I don’t know if you can tell, but I don’t have the highest of hopes for this industry, so please, crypto, surprise me. The big issue is here that these systems are not designed to be sustainable, so chances are they are very unlike to ever be that. Rather it would be more likely that new programmers that are more environmentally conscious would create new systems, with sustainability built in from the beginning. I would also like to add that not all cryptocurrencies have to be mined, and supporting one that does not, is already more sustainable. Many of the ideas there are flowing around about how to make crypto green are in many cases theoretically possible, but not very realistically achievable or pragmatic.
And this is not just my opinion, many companies, including Tesla, have recently stopped accepting Bitcoin as a form of payment due to its environmental impact.
I would also let it be known, that just because crypto has a high impact and is seen to collaborate a lot with the fossil fuel industry that does not mean that banks don’t do this as well. They do, many of them, quite a lot. I have made an impact video about banks and how to find out if your bank is using your money to invest in fossil fuels (and how to change that).
also check out: THE IMPACT OF BANKS // the green guide to banks and investments
We could be lucky and see if more sustainable crypto will be able to compete with Bitcoin, and some of the other bigger options out there, but overall, I would not invest in crypto as it is now, I would much rather invest in stock, and I have also made a video about how to do that, how to find green options to invest in and how to get started.
also check out: HOW TO INVEST SUSTAINABLY // green stocks guide
An interesting question to pose is if it makes sense that such a small portion of the population should get to use resources like this (and yes the exact same question can be asked in the context of basically any other industry, transportation, food, fashion, etc – where the question would also be completely valid. And I do have videos on all of these industries as well, however, even if it is still incredibly difficult to invoke change in these industries, there are oversights, national restrictions, and laws being proposed that apply to these industries, and to a large extend that is not being done for crypto).
Overall, I have been through a journey myself in terms of my stance on crypto, and over the years I have gone from thinking the idea of decentralizing currencies was an amazing idea to believing that as a matter of fact, it poses more problems than it solves. To me, it also seems like the inventor of Bitcoin had something else in mind than what it turned out to be. When Satoshi Nakamoto developed Bitcoin in 2009, it seemed that the idea was that you could be able to mine crypto from your ordinary laptop, and to me, that tells a story of an idea of a global community where a common currency is free of national restrictions and can’t be controlled by a single entity (which could combat corruption), and yeah, granted that would solve a lot of issues. However, today, Bitcoin is a billion-dollar industry, working together with other billion-dollar industries. And today, you are just as likely to succeed at getting Bitcoin rich as your small business is in trying to compete with Amazon from your basement.