Sunday, June 26, 2022

How bad is bitcoin for the environment?

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In just over a decade, bitcoin has grown from a fringe technology popular with cryptographers to become the ninth most valuable asset in the world by market cap.

The dramatic rise of cryptocurrency has created millionaires, reinvented money, and launched a multi-billion dollar industry inspired by its revolutionary decentralized technology. But it has also come with some unwanted side effects.

The computing power required to support Bitcoin’s underlying network now requires almost as much energy as the entire country of Argentina, leading to criticism of its ecological footprint.

Analysis from the University of Cambridge suggests that the Bitcoin network consumes more than 121 terawatt hours (TWh) annually, which would rank it among the top 30 electricity consumers in the world if it were a country.

The demand for energy has been fueled over the past few months by the surging price of bitcoin, which has surged above $42,000 today.

Concerns about Bitcoin’s energy requirements have been raised since its inception, when crypto pioneer Hal Finney tweeted about possible future carbon emissions on Jan. 27, 2009 – just two weeks after he received the first-ever Bitcoin transaction from the cryptocurrency’s pseudonymous creator Satoshi Nakamoto , had received.

The amount of energy Bitcoin’s network consumes only became known in earnest in 2017, when a major price rally drastically increased its energy requirements to the levels of a small country. As the market cooled in the years that followed, so did energy demand, but the most recent all-time high, set this week, is more than double what it was three and a half years ago. And this time, his energy needs are even greater.

“Bitcoin’s energy consumption has more than quadrupled since it began its last peak in 2017, and it’s only getting worse because energy inefficiency is built into Bitcoin’s DNA,” said Charles Hoskinson, CEO of leading crypto company IOHK LatestPageNews.

“Bitcoin’s carbon footprint will deteriorate exponentially because the more its price increases, the more competition there is for the currency and the more energy it consumes.”

Bitcoin’s environmental impact is compounded by the fact that the majority of miners are based in China, where over two-thirds of electricity is generated from coal.

The mining process required to generate new units of cryptocurrency involves solving complex but arbitrary mathematical equations that currently require tremendous computing power of the computer.

Bitcoin miners are therefore gravitating to where electricity is cheapest, meaning the fundamental problem is not with Bitcoin but with a lack of cheap renewable energy generation.

Fortunately, solutions are being introduced, with some eco-friendly mining rigs already operating on a large scale.

In Iceland and Norway, where nearly 100 percent of all energy production is renewable, cryptocurrency miners are using cheap hydroelectric and geothermal energy to power their machines. The low temperatures in the countries also help reduce costs by naturally cooling the computer servers.

Last year, the University of Cambridge’s third Global Cryptoasset Benchmarking Study found that 76 percent of cryptocurrency miners use electricity from renewable sources in their operations. That number increased from 60 percent from the same benchmarking study in 2018.

This trend is expected to continue, according to forecasts by the International Renewable Energy Agency, which last year reported that renewable energy sources are always more cost-effective than fossil fuels.

“In its current state, the infrastructure supporting the Bitcoin protocol cannot be sustained, but the beauty of the protocol is that the incentive structure will force miners to adopt the cheapest form of electricity, which will be renewable energy in the near future will be.” Don Wyper, COO of DigitalMint, narrates LatestPageNews.

“I think the latest study from the University of Cambridge is misguided as bitcoin acts as ‘digital gold’ and should therefore be compared to the energy consumption of other stores of value… The gold mining industry consumes 475 million gigajoules worth of electricity per year.

“And if bitcoin can become the originally envisioned digital currency, we need to consider all of the electricity consumed by currency creation, destruction, transfer, securitization, loss, etc. I personally believe that climate change is one of the most important issues in our world today, but people who say Bitcoin will lead to even more environmental destruction fail to understand that Bitcoin is actually acting as an accelerator to help our environment.”

Alternative cryptocurrencies have also tried to solve Bitcoin’s current environmental problems by changing the underlying technology to use less electricity.

One of these is Cardano, which Hoskinson says is 4 million times more energy efficient than Bitcoin thanks to its “Proof-of-Stake” blockchain, which validates transactions based on how many coins are held by a network participant, rather than the amount of computing power power they possess.

“Cardano will scale to meet the needs of global businesses and consumers, with higher volumes and faster speeds than the existing global financial infrastructure — while the entire global network consumes no more energy than a large single-family home,” says Hoskinson.

If Bitcoin’s transition to renewable energy sources doesn’t happen quickly, Mr. Hoskinson is among several experts predicting that investors and consumers will look for other cryptocurrencies that are less polluting.

“I believe the power of fear of climate change is far greater than the fear of missing out (FOMO) driving this new wave of institutional and private investment in Bitcoin,” says blockchain advisor Scott Morgan LatestPageNews.

“Bitcoin can make an incredible difference in the world. It’s a technological asset. [But] other cryptocurrencies use less energy.”

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