Is Crypto Hurting The Environment?

The global cryptocurrency market cap is valued at over $1.9 trillion. More people troop into this industry to earn their share of the decentralized cake every year. The increased demand for Bitcoin and other crypto tokens has helped to upshoot the prices of these cryptocurrencies.

As people strive to increase their income through cryptocurrencies, environmentalists have called the attention of everyone to the impact of cryptos on the climate. Climate change is a natural phenomenon that human actions have accelerated.

Industrial pollution, oil spillage, deforestation, and other related factors have been earmarked to be some of the significant causes of climate change. What is the relationship between cryptocurrency and the climate? And what impact does cryptocurrency have on climate change?

Cryptocurrency and the Climate

Cryptocurrencies are digital tokens, and how digital assets affect the physical world might shock you. Here’s how it works.

Many cryptocurrencies operate using the proof-of-work system. In the proof-of-work system, the computer that reaches this output gets rewarded with crypto tokens. Several computers perform hashing functions in the proof-of-work system to achieve the desired output. Computers solving hashing functions are similar to students in a class trying to solve a test.

This proof-of-work system, as well as several other cryptocurrency processes, are powered by hardware machines. These machines are stored in a large factories known as mining farms or rigs. To run these farms, ample storage space, fossil fuels, and other sophisticated materials are needed. Investors have to cut down more trees and burn more coal to build mining farms, and these activities affect the climate.

How does Cryptocurrency Affect the Climate?

Through Mining

Bitcoin, for example, is prominent for using proof-of-work as a means of mining and processing transactions. Twenty-one million units of Bitcoin were created from inception. However, this figure is not always complete at any time because some units will be burned as people use the cryptocurrency. Some investors build mining rigs to mine the cryptocurrencies that have been burned. To increase the chances of minting a block of Bitcoin in the proof-of-work protocol, these investors use many computers in the mining rig. But to power these computers, a great deal of electricity will have to be produced, and how is this power generated? Power plants!

For each successful block that is minted, the computer earns 6.25 BTC. As more blocks of Bitcoin are being minted, the more computational effort will be needed from these Bitcoin farms to stand a chance of minting another block. According to The Cambridge Bitcoin Electricity Consumption Index, global mining of Bitcoin uses more power annually than certain countries (e.g., Netherlands, Pakistan, etc.). This statistic shows that Bitcoin miners use more electricity to mine Bitcoin than millions of households.

Transaction

The proof-of-work mechanism is not only used for mining. It is also used to process Bitcoin transactions. It takes about 2,290 kilowatt-hours of electricity to process one Bitcoin transaction. That amount of electricity will conveniently power a typical house in the U.S. for over two months. All of this electricity is generated by burning fossil fuels, and the fuels produce toxic gasses as by-products. These gasses increase the carbon content in the atmosphere, reduce the oxygen for respiration, and deplete the ozone layer - leading to climate change.

Hardware

Mining requires computers, ASIC rigs, graphics cards, and many more. These pieces of equipment get old and outdated. They begin to produce less output, and miners will need to change them and upgrade their mining hardware.

Most of these pieces of hardware are purpose-built and cannot be pushed into the market anymore. Hence, they are condemned and disposed of as waste. BBC reports that these electronic wastes usually sum up to about 30,000 every year. Massive!

What are the Solutions to Crypto’s Impact on the Climate?

Most of the structures being used for cryptocurrency operations were created at inception. Today, there are better and more eco-friendly blockchains that do not release many fossil fuels or spark a need for deforestation. Bitcoin traders and investors must embrace these new means and shy away from the usage of blockchains that deteriorate the state of the earth.

Ethereum, the world’s second-largest cryptocurrency, announced in 2021 that it has almost completed work on a new model of confirming its transactions. This model aims to cut down Ethereum’s energy consumption by over 99%. Also, many other blockchains are built with sustainability in mind. Some of which include Cardano, Algorand, Stellar, SolarCoin, and many more.

Conclusion

Tesla previously announced that the company would no longer accept Bitcoin. If corroborated by other organizations, this action will help sensitize the general public on the environmental effect of blockchains like Bitcoin. Cryptocurrency has provided wealth for several people worldwide (directly and indirectly), and it would be impossible to shut the whole system. However, some solutions can reduce the energy needed to mine a cryptocurrency, and developers must invest resources to optimize these solutions. The proof-of-work system has been replaced with other mechanisms like proof-of-history and proof-of-stake. Fully implementing these solutions will reduce the impact of cryptocurrencies on climate change.