Bitcoin plunged to a record low of $28,000 last week from a record high of $65,000 in April. The cryptocurrency took a beating after China pulled the plug on miners, significantly reducing the BTC hash rate. Many crypto sceptics have since pointed to the ever-raging questions: how much energy does it take to produce Bitcoin? What are the environmental implications?
Crypto mining seems to be complicated. But it isn’t. Mining Bitcoin requires using computers to solve complex mathematical problems. A BTC is created as a result of successfully solving a complex mathematical problem. The point of Bitcoin, according to Satoshi Nakamoto’s founding white paper, was to enable instantaneous, borderless transactions without the high fees or foreign exchange barriers that exist today.
At first, average computers could solve the algorithms, but as the puzzles got harder – a consequence of greater mining – they could not keep up. Special computers with huge processing power are required and these need a lot of electricity – around 121 terawatts annually, equivalent to the annual carbon footprint of Argentina.
Hence the attack on Bitcoin, NFTs, and other forms of crypto. How much does a monetary system hurt the environment?
Although mining Bitcoin does not necessitate the use of pickaxes or other mining gear, this does not imply that cryptocurrency is energy efficient. In fact, the digital currency consumes a lot of energy.
Bitcoin and NFTs both produce massive amounts of carbon emissions. A single bitcoin transaction, for example, has the same carbon impact as 680,000 Visa transactions or 51,210 hours of YouTube bingeing. The average NFT produces roughly 200 kg of carbon, which is the equivalent of driving 500 miles in a gasoline-powered car. According to the Digiconomist website, a single Ethereum transaction consumes more than 70.32 kWh, enough to power 1 U.S. household for 2.5 days. This is equivalent to a carbon footprint of around 34 Kg of carbon dioxide (CO2).
According to the Cambridge Center for Alternative Finance (CCAF), Bitcoin currently consumes around 110 Terawatt Hours per year — 0.55% of global electricity production, or roughly equivalent to the annual energy draw of small countries like Malaysia or Sweden.
Between 2018 and 2019, the amount of computing power required to mine bitcoin doubled – but where does this massive amount of electricity come from? It might be said that we are increasingly relying on renewable energy sources; according to the University of Cambridge research, 76% of miners employed renewable energy in 2020.
As the NFT gold rush surged in the first quarter of 2021, many analysts pointed to the fact that increased interest in NFTs was exacerbating the environmental implications of mining cryptocurrencies.
“With electricity consumption of cryptocurrencies being more than several countries, the rush towards NFTs has further increased this issue,” said Devesh Mamtani, an NFT expert at Century Financial in the UAE. “This is very concerning.”
Bitcoin is no different. Over the past two years, the historic rise of Bitcoin has caused emissions to increase by over 40 million tons—equivalent to 8.9 million cars added to the road, according to a Bank of America report.
Musk and The New Mining Developments
Elon Musk went back on his previous decision to let buyers pay for Tesla cars using Bitcoin. His reason: Mining the digital currency is taking its toll on the environment.
Tesla said it won’t sell its bitcoin. The automaker is sitting on $2.5 billion worth of the digital coin and Musk said it intends to resume transactions with bitcoin once mining “transitions to more sustainable energy.”
“We are also looking at other cryptocurrencies that use <1% of Bitcoin’s energy/transaction,” he said.
The Tesla CEO’s reversal, made on Twitter, led to a steep fall in the value of Bitcoin, with over $365 billion in market value wiped off BTC within 48 hours. Many Bitcoin maximalists went for Musk’s throat, calling him a hypocrite. A new crypto coin named “FuckElon” appeared as a protest against Musk.
In theory, a greener version of bitcoin is possible. Bitcoin’s code could transition to a less energy-intensive consensus process, in which a new piece of the cryptocurrency’s blockchain record follows different rules. Every miner, on the other hand, would have to transition to a new way to work. But the possibility of a quick change is almost impossible. The Bitcoin community is riddled with a lot of disagreements.
However, in El Salvador, President Bukele has turned to volcano-powered mining as the country adopts Bitcoin as the country’s legal tender. This might be a step in the right direction in the reduction of Bitcoin’s carbon footprint.
Ethereum’s creators have also promised to switch their algorithm from a ‘proof of work’ to a ‘proof of stake’ model to make mining more environmentally friendly. For the proof of stake model, miners will be rewarded depending on how much cryptocurrency they hold, rather than competing to solve complex mathematical calculations. Miners demonstrate that they have a “stake” in keeping the blockchain accurate by storing some of their cryptocurrency in the network, obviating the need for computers to solve the difficult algorithms. Emissions are reduced by reducing computing labour. The shift to “Ethereum 2.0” could reduce the energy consumption of NFTs by 99%, because proof of stake has basically no emissions.
As crypto adoption continues to grow, the crypto community will have to quickly figure out how to divorce itself from large carbon emissions. NFT will need to separate itself from Ethereum so that digital arts will be able to be sold and distributed without impacting the environment. This is the only way the crypto-future will yield any beneficial returns without harming the environment.
Related article | Crypto Asset Firm One River Files for Carbon-Neutral Bitcoin ETF
Featured image from UnSplash, charts from TradingView