By Jenna Everard
Though the idea of a cryptocurrency had been proposed before, the concept first gained mass attention in 2008 when Satoshi Nakamoto, the pseudonym of the unknown founder(s) of Bitcoin, published their paper, “Bitcoin: A Peer-To-Peer Electronic Cash System.”
Cryptocurrencies are virtual currencies secured by cryptography in a manner that makes them extremely difficult to counterfeit, steal, or double-spend. This integrity is ensured by building the currencies with decentralized blockchain technologies, which means that rather than having a centralized authority for all transactions, for each transaction, individuals in the network may choose to participate. Once a transfer has been verified and placed into a “block”—a file containing records of the most recent transactions—various participants, known as miners, compete to be the first to generate a cryptographic key, known as a “proof-of-work.” Such keys are extremely time-consuming and require mass amounts of computing power to produce, yet they can be easily checked before the block is added to the blockchain, forming an ongoing record that is almost impossible to fabricate or change. Successful miners—those who win a key-generating competition—are then rewarded with units of the respective cryptocurrency.
Cryptocurrencies have their clear benefits: there’s high integrity, there’s no middle-man bank charging fees, and there’s no need to print any physical currency. Yet, despite the influx of miners and the talk of cryptocurrency being the currency of the future, a snag in this idealism has emerged — cryptodamages.
Cryptodamages is the term used to describe the impacts of digital currencies on human health and Earth’s climate. This realized phenomenon of the large environmental costs of cryptocurrencies has stemmed from the extreme energy consumption required by cryptocurrency mining. Following widespread news coverage of the potentially lucrative nature of cryptocurrency mining, many people were drawn to the challenge. In hopes of outcompeting individual miners, those who were especially dedicated began to form communities. These “mining camps,” also known as “mining farms,” consolidated efforts and combined computing power and resources. To ensure efficiency, they were typically centralized around areas with access to fast internet and cheap energy, regardless of whether this energy was environmentally friendly.
In recent years, the detrimental damages caused by these practices have become evident. Taking Bitcoin as a case study, the same paper that coined the term cryptodamages found that in 2018, every $1 of Bitcoin created corresponded with approximately $0.49 of health and environmental damages in the United States. Studies by Digiconomist have shown that the annual carbon footprint of Bitcoin is comparable to that of the entire country of Slovakia. Furthermore, a single Bitcoin transaction (just one) consumes the same amount of energy used to power an average United States household for 25 days!
Yet, despite their current environmentally-costly practices, cryptocurrencies can’t be dismissed. To see why, it is necessary to compare them with their alternatives: gold and banks. While Bitcoin may have a large carbon footprint, its global energy consumption is not any more significant than those of other industries. The University of Cambridge’s Bitcoin Electricity Consumption Index estimates that annually, Bitcoin consumes 121 Terawatt-hours (TWh) of electricity per year, the same amount consumed by the entire country of Argentina annually, or, coincidentally, the same amount needed to power all of the tea kettles in the United Kingdom for the next 28 years. Yes, this is a lot, but compare this to the gold industry, which consumes approximately 131.9 TWh annually, or the banking industry, which is estimated to consume approximately 140 TWh annually! Not only do the gold and banking industries contribute significantly to fossil fuel emissions—despite their efforts to reduce such emissions—but many, especially many banks, also act as large financial supporters of fossil fuel companies. Thus, cryptocurrencies may not be any less environmentally friendly than current mainstream financial options, and, in light of their recent strides towards sustainability, cryptocurrencies may perhaps be the better of two evils.
The 3rd Global Cryptoasset Benchmarking Study, published in September 2020, found that over a third of the energy used for hashing and mining now comes from renewable sources and that over three-quarters of cryptocurrency miners use renewable energy sources. Diverging from cheap, non-renewable, greenhouse-gas-emitting electricity, many mining farms are switching to that which is naturally sourced and environmentally friendly, most commonly in the form of hydroelectric power. Additionally, many farms are working to offset the environmental impact of their energy consumption by finding uses for the excess heat generated. Farms in the Czech Republic have used this excess to power large greenhouses for growing tomatoes—appropriately named their “cryptomatoes”—and farms in Siberia have redirected it to provide low-cost heating for neighboring homes. Still others have worked towards a complete alteration of the fundamentals of cryptocurrencies. Full or even partial removal of the extremely high energy-consuming process of mining may reveal an alternative eco-friendly blockchain option.
Cryptocurrencies may be the future of environmentally conscious finance, but there are still many changes to implement moving forward. As society becomes ever more digitalized, it is important to acknowledge and work to mitigate the environmental repercussions that arise, so that digitalization and conservation can continue to work for the benefit of one another.