Your resident tech laymen is back again with another discussion on a tech topic – cryptocurrency. The cryptocurrency market was valued at $1.49 billion in 2020 and is expected to grow to $4.94 billion by 2030.
But what is cryptocurrency, and how does it negatively impact the environment? Let’s discuss.
What is Cryptocurrency?
Cryptocurrency or crypto is any form of currency that exists digitally. It’s a digital asset of exchange that is transferred from a computer network without the need for a centralized authority like a bank or government. Crypto allows value to be transferred without a middleman on peer-to-peer networks of computers meaning that anyone can buy, sell or trade crypto.
Some of the most popular forms of cryptocurrency are Bitcoin, Ethereum, XRP and Tether. For the purposes of this article and to keep things simple, we’ll focus on Bitcoin as the main form of cryptocurrency in our discussion.
If there is no centralized authority regulating the value transfer, how are transactions secured on these open networks? The answer – blockchain. Blockchain is the technology that cryptocurrencies operate on and it keeps track of who owns what as it vets every transaction to ensure that transfers are secure. The aim of the blockchain is to ensure security and safety when making online transactions because it stores information on every transaction with that form of crypto.
So how is cryptocurrency (bitcoin) created? If it’s a digital asset, what is the process of adding currency to the network? Bitcoin is created by solving a complicated mathematical process that verifies the transaction of adding currency to the blockchain. Bitcoin mining involves not only creating new coins but also validating them on the encrypted network. Miners compete to add a block to the blockchain by using advanced hardware and extensive amounts of electricity. Whoever solves the mathematical problem first gets to upload the new information to the blockchain and is rewarded a sum of bitcoin in return. In theory, anyone can mine bitcoin, but sometimes, the time and effort to mine the currency is not worth the outcome.
Bitcoin and other cryptocurrencies are highly volatile meaning the prices of bitcoin can skyrocket in one month and crash in another. This makes the process of mining bitcoin lucrative but also a gamble. Some new investors are nervous to enter the bitcoin mining game because of the risks associated with the constantly changing values, but others, who like the risks, take a chance and can make large sums of money. As of today, one bitcoin is worth 42,416 USD.
All of this sounds great right? Cryptocurrency is a digital asset that is secured through an encryption network called blockchain that can wield large profits for lucky investors. With the rise of the metaverse and an increased digital presence, cryptocurrency seems to be the future of digital transactions. However, mining cryptocurrency is not relegated to merely the digital world. The mining process impacts our physical environment and raises some concerns about sustainability.
Cryptocurrency’s Environmental Impact
To talk about cryptocurrency’s environmental impact, we must go back and discuss the mining process. Users who mine crypto run complicated mathematical programs on their computer, and the more power used to run the program, means the miner has a greater chance of solving the math algorithm and adding new coins to the blockchain.
Application-specific integrated circuit (ASIC) miners are very powerful computers created with the purpose of mining bitcoin because they optimize computer power towards solving proof-of-work problems. Proof-of-work ensures that nobody manipulates the blockchain for their own profit by lying about how much bitcoin they own.
Essentially, the better, faster and more powerful computer one has, the more likely they are to solve the proof-of-work problem, and they are more likely to secure the right to add a block to the blockchain. Because so many people mine for bitcoin, the competition increases and people look for better computers that can use more electricity to run faster programs. It’s a time race and whoever has the most optimized computer will reap the rewards.
So what does all of this mean for the environment?
Bitcoin alone uses 1,173 kilowatt hours of electricity. The UK financial site, MoneySuperMarket states that this amount of energy equates to six weeks of electricity in an average United States household. As a result of this high energy use, bitcoin mining also releases carbon dioxide into the atmosphere. Bitcoin’s carbon footprint is equivalent to that of New Zealand and bitcoin mining produces 36.95 megatons of carbon dioxide each year.
Because proof-of-work is the main way to validate that a user actually computed the mathematical problem on their own computer resulting in high energy consumption, these negative environmental impacts are likely here to stay. However, not all cryptocurrencies use proof-of-work to validate their processes. Proof-of-stake is becoming an alternative to proof-of-work.
In the proof-of-stake method, miners give up some of the coins they already own and create a “validator node” which allows them to add blocks to the blockchain. Then the blockchain will choose a validator at random to add new information to the chain. The validator verifies the block and is able to add it to the block chain similarly to proof-of-work. However, if the validator adds inaccurate information, they lose the coins they gave up to create the validator node. This ensures that security and accuracy remain at the forefront, and proof-of-stake does not use the intensive energy consumption that proof-of-work uses.
Proof-of-stake is not perfect, but it’s an environmental alternative to the current use of proof-of-work verification. Ultimately, crypto is not going away anytime soon, but we need to be conscious of the environmental impacts that come from intense energy use and carbon dioxide emission.
I’m a public relations student at the University of Georgia with a passion for creative storytelling and content creation. The work I produce reflects my love for music, art and culture, and I strive to create content that resonates with college students.