Is Crypto mining really affecting the environment?
After the CEO of Tesla and SpaceX Elon Musk tweeted last week, that they would not be accepting bitcoin as the payment mode for purchasing Tesla vehicles, due to climate concerns—bitcoin plunged as much as 17%.
Environmentalists and critics have concerns about the impact of bitcoin on climate change. In 2021, BBC reported that mining a bitcoin takes 121 Terawatt-hours of electricity which is the annual consumption of energy in countries like Austria, Argentina, and the Philippines.
What is cryptocurrency mining?
Cryptocurrency mining is the solving of complex computational math problems using high-powered computers. The data are recorded to the blockchain, the records are shared by a network of devices that also take part in the mining process.
The cryptocurrency is entirely different from the traditional banking system, where there is a centralized system that approves each transaction. Whereas, cryptocurrency operates in a decentralized way, with a blockchain or public ledger ranging across computers. Each transaction requires performing cryptographic calculations.
Each miner can confirm/verify the transactions on the bitcoin network by performing the calculations required to add new transactions, instead, they get rewarded i.e bitcoin for their computing work.
Is crypto mining bad for the environment?
You might have heard of many success stories of individuals and businesses because of their investments in bitcoin or other digital currencies. However, you have been ignorant about the possible damage that these digital currencies are causing the environment due to their high energy consumption which is mostly from non-renewable resources.
Bitcoin mining requires specialized software called 'Application Specific Integrated Circuits', powerful mining equipment that runs 24*7 to effectively mine bitcoins. The mining equipment goes obsolete very quickly, new equipment replaces the old, slower machine’s—which adds to the e-waste. Bitcoin alone generates 8-12 thousand tons of e-waste annually, according to Digionomist.
It is estimated that a total of 36.95 Megatons of CO2 is produced annually and in the next 3 decades, an estimated temperature increase of 2 degrees Celsius is possible due to this. A whopping 65 percent of miners are based in China, which gets most of its energy from fossil fuels.
The annual consumption of power by bitcoin mining is 121 Terawatt hours of electricity, as reported by BBC. The environmentalists have expressed their concerns on bitcoin being less efficient as the prices increases since complex computational problems will be difficult to solve, which increases the power consumption.
The enormous amount of energy used is to make the bitcoin blockchain more secure—the more energy(electricity) spent to increase the computational power, the more secure the blockchain becomes.
Is crypto mining good for the environment?
From purchasing a $1.5 billion worth bitcoin to taking a 'U-turn' on allowing cryptocurrency for the purchase of Tesla vehicles--Billionaire Elon musk is now more concerned about the environmental damages and increase of carbon footprint because of bitcoin mining.
But is Crypto mining affecting the climate Some experts disagree.
"We believe that the opposite is true: a world with bitcoin is a world that, at equilibrium, generates more electricity from renewable carbon-free sources,” says Winston, director of research at ARK Invest in his blog post.
According to Winston, Bitcoin mining can help reduce dependence on non-renewable resources by promoting more environmentally friendly alternatives. He also argued that excess energy which is generated can be used by bitcoin and ultimately help firms that deal with bitcoin mining become profitable.
Bitcoin miners perform complex calculations per second which require a maximum number of hashes per KW. Renewable sources like solar and hydropower generate the highest hashes/kW of electricity, which is required during the mining process-this is another reason to hasten the shift to renewable energy.
Bitcoins require fewer infrastructural needs. If you consider the traditional financial system, you will need a system of resources from printing, money transportation, preventing frauds, and counterfeiting--it's a lengthy process. Whereas in bitcoin, all it takes is a computer, internet, and electricity. Also, bitcoin usage will stop our dependence on third-party institutions like banks to process the transactions and will reduce the usage of paper/metal currency.
Traditional currency encourages spending, whereas bitcoin is profitable if saved, which will reduce unnecessary spending of the money at your disposal. Saving your money in the bank will reduce its value over time due to inflation, whereas bitcoins are valuable over time.
Moreover, we will start purchasing based on our needs, we can reduce carbon footprint and protect our environment by less consumption of non-essential items
Every innovation has a good and bad side to it. There's little doubt that bitcoin uses a large amount of electricity for mining. Even though, many experts in this field have urged that bitcoin uses renewable resources for most of its energy needs. Ultimately it depends on us to mine cryptocurrencies in a responsible way to cause minimal damage to nature.
CBW - External Analyst