30 June 2021 – by Raj Shekhar
The global cryptocurrency revolution has reached an all-time high with people actively involved in cryptocurrency investing. The idea of a decentralized currency without privacy concerns has been the key factor behind the growing popularity of these digital currencies. This has been acknowledged by institutions like Deutsche Bank, which anticipates that by 2030 digital currencies will have over 200 million users and could eventually replace cash one day. Another major factor that propels the success of already popular cryptocurrency is its portrayal as a ‘greener’ alternative to traditional cash and its potential to evolve into a global currency. However, Elon Musk stirred global controversy when he questioned the environmental impact of cryptocurrencies, and subsequently declined to accept Bitcoin for Tesla payments.
The exchange rate of Bitcoin has fallen drastically, due to subsiding hype and excitement, the prevalence of common sense, and the global audience shifting their attention to how much energy is actually consumed by these cryptocurrencies. The potential conflict between these ‘future global currencies’ and the efforts being made towards ‘a sustainable future’ is intriguing. This article attempts to understand this potential conflict through a detailed analysis of the energy consumed by cryptos, its incompatibility with the idea of a sustainable future, and the challenges it poses to a greener tomorrow.
Cryptocurrency Mining and Energy Consumption
Cryptocurrencies, unlike the traditional banking system of maintaining account balances in a central database, make use of a distributed network of ‘miners’. These are a network of specialized computers that keep a record of new and constantly added blocks. A computational race exists between these miners to earn incentives, and as such blocks can only be recorded by solving cryptographic puzzles. Incentives or bonuses are only given to the recording miner. While on the one hand this assures a fail-proof system, on the other, it requires huge computational power. This mining process tends to lose efficiency due to the rising prices of the cryptocurrencies, because the mathematical puzzles to create blocks become more complex and require more computation power to keep the number of transactions constant. This means more computing power and energy is being consumed per block to process the same number of transactions in the face of the increasing complexity of the puzzles.
As per recent research by the University of Cambridge which aims to create a Bitcoin electricity consumption index, it has been estimated that the miners of Bitcoin alone are going to consume 130 Terawatt-hours of energy (TWh). This energy is close to 0.5% of global electricity consumption. Just like any other conventional source of energy, electricity has its fair share of carbon emission issues. Using the standard global scale, such an amount of electricity usage would put the Bitcoin economy on par – in terms of carbon dioxide emissions – with a small developing nation. It is also interesting to note that 65% of Bitcoin mining takes place in China, where the major source of electricity generation is coal burning. Many other countries around the world are primarily dependent on coal and fossil fuels for electricity generation. This is even more concerning as coal burning is a significant contributor to climate change, owing to the high carbon emission rates associated with it. An alarming report by CNBC suggests that Bitcoin alone produces 35.95 million tons of carbon dioxide emissions every year.
The Paris Agreement and Sustainable Development Goals
Under Article 2(c) of the UN Paris Agreement (a legally binding international treaty on climate change adopted by 196 Parties at COP 21 in Paris on 12 December 2015) every signatory is obligated to make attempts to hold global temperatures within 2°C above pre-industrial levels. This agreement also reflects the understanding that the future of international finance must include a to switch to low greenhouse gas emissions. Thus, the signatories that allow for such crypto-mining to continue are directly violating the agreement. Furthermore, the central idea of the agreement was to enable modern technology to be utilized in a way that mitigates greenhouse gas emissions to the highest standard possible. The highly polluting use of technology, such as that discussed above, would be in stark contravention of the spirit of the agreement.
The Sustainable Development Goals (SDGs) are a global agenda which was adopted by countries in 2015 with a vision to end poverty, protect the planet, and ensure that all people enjoy peace and prosperity. The 17 SDGs and 169 targets are part of what is known as ‘the 2030 Agenda’ which recognizes that “eradicating poverty in all its forms and dimensions, including extreme poverty, is the greatest global challenge and an indispensable requirement for sustainable development”. Usage of cryptocurrencies directly contradicts these goals which were formulated to ensure a sustainable and better future for humanity. They directly go against SDGs 7, 9, 11, and 12 which deal with ensuring affordable and clean energy, industry, innovation and infrastructure, creating sustainable cities, and responsible consumption and production respectively.
The Solution: Revamping the Crypto-Model
The analysis of the various reports and the due examination of the crypto energy consumption pattern highlights that the seemingly ‘green’ currency actually has a huge carbon footprint. The present generation of the human race, in its efforts to tackle global climate change, has been constantly trying to transition towards more energy-efficient technology. Millions of dollars are being poured into research and development to come up with sustainable and green technology. On the face of this, the growing popularity of cryptocurrencies can be seen as a major setback because, in their present state, they endanger the future of human civilization.
With global temperatures increasing, we have seen a fresh rise in global warming-related issues. Whether it be as a result of untimely flooding or pre-season blooming, the very existence of human life is being threatened. People are forced to leave their homelands because of climate stressors. It is ironic that the currency which promised to, in a way, mitigate the challenges of the global climate crisis has itself become one of its major causes. The energy consumption of these cryptocurrencies and the hope of a sustainable future are antagonist pairs; neither can live while the other survives. The key lies not in the complete abandonment of cryptos but a gradual transition to more energy-efficient ways of mining them.
Whether you’re in favor of cryptocurrencies or against them, there is little doubt that these blockchain-based currencies use enormous amounts of energy. Much of this energy usage comes from burning coal and other fossil fuels, although cryptocurrency advocates have argued that renewable sources are also a major component. While the exact figures are disputed, even the best-case scenarios indicate that mining is a major factor in carbon dioxide emissions. Thus, the question that naturally follows is: do we abandon the cryptocurrency framework? The answer to this question is tricky. While there is no denying that cryptocurrencies in their present state of operation are a great threat to the idea of sustainability, there have been recent developments of alternate cryptos which are more promising and less energy-consuming. For instance, Ripple (XRP) consume only 0.0079 KWh per transaction – this is highly power-efficient when compared to Bitcoins. Further, new forms of energy-efficient crypto mining are being introduced.
Cryptocurrencies, in their current form, are not only highly inefficient, but their continued usage can pose considerable danger to the future of humans. There is more than one solution to the problem: from devising a better mining strategy, to transitioning towards greener energy for mining. The entire concept is so nascent that hardly any academic debate or scientific report available could suggest concrete plans. However, looking at the growing popularity of cryptos, it is pertinent to note that there indeed exists a problem and the need of the hour lies not in ignoring it, but rather starting a meaningful discussion to come up with better strategies to effectively tackle it.
Raj Shekhar is a law student at National University of Study and Research in Law, Ranchi, Jharkhand, India. He is the current Future Leaders India (Political Strategy) Fellowship holder.
