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What is Cryptocurrency?
According to Forbes Advisor, cryptocurrency is a form of non-centralized digital currency built on the foundation of blockchain technology. Popular cryptocurrencies include Bitcoin, Dogecoin and Ether.
Cryptocurrency and Energy Consumption
Before we dive into the environmental impacts of cryptocurrency, let’s take a look at “mining”. Mining is the term used to describe the process of cryptocurrency entering into circulation. Mining is essential to maintaining the blockchain ledger. Mining is known to be very cutthroat and competitive. Thus, mining requires a large amount of time and energy.
Going back to the decentralised nature of cryptocurrency, transactions done using cryptocurrency are kept within a web of miners. Computers in this network are in a constant battle with each other to solve problems in order to add new blocks.
To illustrate the amount of energy consumed during mining, let’s use Bitcoin as a case study. The BBC suggests that Bitcoin consumes more energy than Argentina. Bitcoin’s energy consumption outranks the Netherlands and United Arab Emirates (UAE). According to the same study, Bitcoin uses 121 terawatts of electricity every year. To paint an even clearer picture: a study conducted by the University of Cambridge suggests that if Bitcoin were a country, it would be the thirtieth highest consumer of electricity.
The higher the price of Bitcoin climbs, the more energy needs to be consumed to keep up with it. Another part of the issue is the mammoth machinery needed to support mining. When those computer systems eventually become outdated, the amount of E-Waste that will end up in landfills will skyrocket. The production of these computers is also relatively energy-intensive.
The Impact of Bitcoin’s Energy Consumption
The electricity consumed by these computer systems is mainly generated from burning fossil fuels. The burning of fossil fuels emits carbon dioxide, a greenhouse gas. Greenhouse gases, when discharged into the atmosphere, can cause climate change. According to a research paper published by Dabo Guan, the Bitcoin blockchain in China is projected to generate the same amount of emissions as the yearly output of the Czech Republic.
Solutions
So, how can we lower emissions? Some Bitcoin users in China are known to use Hydroelectric energy and fossil fuel. Another solution to this issue is a carbon tax. A carbon tax would make mining less alluring. However, miners can still go to states or jurisdictions where carbon laws are a bit laxer. Another solution is The Crypto Climate Accord. The Crypto Climate Accord is a group that aims to make cryptocurrency greener. This group is creating a software that will allow users to anonymously report the amount and type of power they are using.
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