As cryptocurrency becomes mainstream, its carbon footprint can’t be ignored
- Cryptocurrency has grown in popularity quickly. As it has grown in popularity, issues of environmental sustainability have arisen.
- These are connected to cryptocurrency digital mining, particularly Bitcoin, which has a significant carbon footprint due to the enormous amount of energy required.
Events indicating increased adoption of Cryptocurrency.
- Goldman Sachs has begun to trade Bitcoin futures (agreeing to transact the coin at a predetermined future date and price).
- Tesla made a $1.5 billion Bitcoin investment. PayPal announced in March 2021 that its U.S. customers would be able to pay its millions of online businesses using cryptocurrencies.
- El Salvador became the first country to make bitcoin legal money in September.
- Several well-known companies, including AT&T, Home Depot, Microsoft, Starbucks, and Whole Foods, now accept bitcoin payments.
- It is referred to as Distributed Ledger Technology.
- It facilitates the process of recording transactions and tracking assets in a business network.
- It is ideal for delivering the information in business because it provides immediate, shared, and completely transparent information stored on an immutable lednar that can be accessed only by permission network members. With the shared ledger, transactions are recorded only once, eliminating the duplication of effort.
- No participant can change or tamper with a transaction after it's ownership changes hands. Hence, it has recorded to the shared ledger. The blocks form a chain of data as the no single user control.
- The blocks confirm the exact time and sequence of transactions, and the blocks link securely together to prevent any block from being altered.
- Each additional block strengthens the verification hence the entire blockchain is formed. of the previous block and The verification of each block make the blockchain tamper-evident and builds a ledger of transactions that network members can trust. . The applications that depend on the basic features of the blockchain can be developed without asking anybody for permission or paying anyone.
- Since blockchain operates through a decentralized platform requiring no central supervision, it is used in voting, banking, messaging app, Internet advertising, etc. Hence, it is not restricted to cryptocurrency.
Global carbon footprint of the Bitcoin
- The carbon footprint of Bitcoin is similar to that of New Zealand, according to the Bitcoin Energy Consumption Index from Digiconomist, an online tool, with both generating approximately 37 megatons of CO2 into the atmosphere each year.
- Bitcoin's total yearly power usage is estimated to be approximately 204.50 terawatt-hours, roughly similar to Thailand's.
How is Cryptocurrency contributing to carbon emissions?
- Bitcoin transactions are recorded in a public ledger called the blockchain, which is made up of a global network of computers.
- Mining enables for this validation, which is a time-consuming and energy-intensive procedure.
- In May 2021, the coal-rich region of Xinjiang was home to at least half of China's major portion in bitcoin mining.
- The Ethereum Blockchain is also used to mint digital artworks as NFTs (Non-Fungible Tokens) using a procedure known as proof-of-work (PoW), which creates its unique identity.
- As of December 2021, the carbon impact of a single Ethereum transaction was 102.38 kilos of CO2.
- A single Ethereum transaction consumes nearly the same amount of electrical energy as a typical US home consumes in 8.09 days.
Why environmental challenges due to Cryptocurrencies are likely to increase?
- Bitcoin is only accessible in a limited quantity. As more bitcoin is mined, the complicated math problems required for transactions get more difficult to solve, requiring more energy.
- Mining incentives: In the case of Bitcoin, a miner receives a little amount of the cryptocurrency each time they solve the difficult hashing process necessary to create bitcoin (the ""PoW""). This means that if Bitcoin's price rises, so will the motivation to mine the cryptocurrency.
Criticism around Bitcoin energy usage right.
- Any serious criticism of Bitcoin must take into account the larger context of energy use.
- Bitcoin's energy openness puts it in a better position than other, less transparent energy-consuming businesses like banking. According to studies, Bitcoin uses less than half the energy produced by the banking and gold industries.
- Bitcoin, unlike traditional cash or gold, is not just a store of value or a medium of transaction. Given its diverse potential applications, Bitcoin's relative energy use is productive in compared to other industries.
- In addition, it is frequently assumed that the energy consumed by miners is either taken from more profitable uses or resulting in increasing energy consumption.
- However, because of inefficiencies in the energy market, bitcoin miners are enticed to use non-rival energy that would otherwise be wasted or underused, as it is the cheapest.
What can be done?
- Switch to Renewable Energy: Renewable energy accounts for approximately 39% of all proof-of-work mining. So perhaps the simplest approach to a green future for Bitcoin is to just increase that amount.
- Making the Switch to Proof-of-Stake Systems: Cryptocurrencies may transition from proof-of-work to ""proof-of-stake"" systems, which may not need the same frantic effort to solve hard riddles.
- Embrace Pre-Mining: Some cryptos have added pre-mining, a mechanism that functions similarly to fiat currency or stocks, to prevent the excessive processing necessary in swiftly solving math problems to earn digital coins.
- Introduce Carbon Credits or Fees: This means it buys carbon credits from another firm to help offset the amount of emissions it produces, or it shifts to greener energy to sell its credits for a profit.