When we think about cryptocurrency such as Bitcoin, it seems the least likely currency to have a negative impact on the environment. For some sceptics, the currency essentially doesn’t exist, so how can it harm the environment. But there is indeed an environmental price to cryptocurrency and to understand that toll, we must remind ourselves of how cryptocurrency is ‘made’ and exchanged.
Cryptocurrency is a secure and sometimes even anonymous currency that relies upon blockchain technology, essentially a ledger that everyone can see. This ledger lists all the transactions that are happening in the cryptocurrency system. But it is not a physical, paper ledger. Instead it is run through computer code on thousands of networked computers around the world. Together, these computers are confirming who owns what amount of a cryptocurrency, for example Bitcoin.
The code is designed to release new currency, ie Bitcoins, on a schedule. To get them, a cryptographic puzzle must be solved. ‘Mining’ of the currency takes place by computers trying repeatedly to solve the puzzle until they succeed. The computer that ‘wins’ then publishes its solution to all the other computers on the network and receives the coin. Anyone can become a ‘miner’ by downloading the software.
It starts to become clear that all of these computers and servers engaged in cryptocurrency mining use energy that will increase CO2 emissions. The energy used to power the computer network behind these currencies should not be underestimated. It’s a significant amount, right at a time when we are trying to wean ourselves away from fossil fuels. We know we are years or maybe decades behind in tackling our global challenge of climate change and that we must evaluate every new development upon its likely impact on the environment. Ironically, given that cryptocurrency is seen as the ultra-modern, liberating financial trend, it could be failing our environmental agenda.
The Digiconomist Index tells us that one Bitcoin transaction is equivalent to powering nine US homes for a day and miners are constantly installing faster computers in their pursuit of the currency. This index also tells us that the number of British people who could be powered by Bitcoin mining is a staggering 6.1 million (more than the population of Birmingham, Leeds, Sheffield, Manchester, Bradford, Liverpool, Bristol, Croydon, Coventry, Leicester & Nottingham combined).
At cryptocurrency’s current growth rate, the demand would soon outstrip the electricity available, requiring new energy-generating plants, just at a time when we are trying to be climate conscious. The trajectory of this new strain on the electricity grid is not sustainable.
What can we do about it? There are some technological efforts underway to minimise the volume of energy required to mine Bitcoin. In addition, some early movers are trying to build in green credentials from the start. They include GENERcoin, a cryptocoin which can be redeemed for a specific solid biofuel, or traded like Bitcoins. The EnergyCoin is more of a local or community currency. Producers can earn SolarCoins, a Bitcoin with a twist, by presenting their solar renewable-energy certificates. But these new initiatives have not received that much attention. Other examples include Climatecoin, an Ethereum-based cryptocurrency, which teamed up with a carbon credit exchange in an effort to help in the fight against climate change. They aim to create the world’s first blockchain-based platform for carbon credits trading. CarbonCoin literally plants trees and they explain that they use low energy methods, claiming that their mining takes lightbulb levels of energy, rather than the equivalent of entire countries. BitSeeds is collaborating with the Rainforest Foundation to help stop deforestation and plant 1 billion trees through the creation and use of its cryptocurrency.
We all need to educate ourselves so that it is widely understood that cryptocurrencies demand energy that is more often than not met through fossil fuel energy sources. In addition to polluting our air and water, they are contributing to greenhouse gases that cause the climate change we so urgently need to counter. Bitcoin and other cryptocurrencies have been marketed to us as creating some kind of utopia where we no longer have to deal with banks and we can rely on the block-chain community to ensure our payments are valid. That is all very well but not when the Bitcoin system itself is based upon environmental damage. Serious policies and innovation need to be directed to ensuring that environmentally responsible currencies are the norm and not a novelty.