It hasn’t been long since Bitcoin broke the ground in 2009, turning the monetary landscape upside down. With its decentralized nature and exceptional privacy, cryptocurrency quickly became popular among young people trying to make quick money. But others, like Karin’s Kloosterman’s startup Flux, were creating a nature monitoring system, decentralized, using blockchain technology. There are ways that blockchain can also help the planet.
As interesting as it is for tech and financial experts alike, there’s no way around the harsh truth that’s often swiped under the rug while discussing crypto: it damages the environment and the communities where it’s mined.
There has been extensive research done on the disruptive effects of cryptocurrency on the financial market, however, fewer people have highlighted the environmental damage that it causes along the way.
What is crypto mining?
In order to maximize their profits, crypto miners always try to seek out places with low-cost electricity and weak environmental policies, ultimately creating hazards for the environments and impact local populations without benefitting the communities.
The way the crypto miners produce currency is through an energy-intensive process requiring vast computing resources. According to recent estimates, over the course of a year, cryptocurrency consumes around 64 TWh (terawatt hours) of energy. Ranking it on top of the country of Switzerland by energy consumption, which 58 TWh per year.
As financial technologies become more and more accessible, ultimately making our lives much easier, there are certain aspects of fintech that create lasting damage to human health and the environment around us. Some activities that were once only a prerogative of the privileged few, like foreign exchange trading, are now accessible for everyone with a smartphone. This mobile trading FX brokers list shows just how much more accessible it is for virtually anyone to get involved in the foreign exchange market. With the increased accessibility to both FX, crypto, and other interesting new financial technologies, there should also be an increased awareness of the potential damaging side-effects that they might entail.
Due to its decentralized control, most cryptocurrencies have emerged from the grassroots communities, rather being corporate or government managed. To put it simplistically, cryptocurrencies are generated by using computers to solve puzzles that are stored in a blockchain, which are accessible on a decentralized database.
The difficulty of the puzzles increases proportionally to the number of miners competing to unlock bitcoins. In order to continuously solve the algorithms, mining servers require a tremendous source of energy. Ultimately, if the energy expense of mining exceeds the income from the currency produced, there is no more motivation to continue mining, which also significantly undermines the infrastructure that validates its monetary value.
In practice, this means that the possibility of profiting from mining cryptocurrency rises with the more powerful computer, faster internet connection, and the cheaper infrastructural services, such as electricity.
The damaging environmental impact of crypto mining
Despite its digital nature, the impact that cryptocurrency has on the physical environment and the welfare of communities where it’s mined can’t be ignored.
“With each cryptocurrency, the rising electricity requirements to produce a single coin can lead to an almost inevitable cliff of negative net social benefit,” states a recent study about the monetary price of health and air quality impacts of cryptocurrencies.
Researchers claim that although mining activities produce financial value, electricity use creates “crypto damage” — a term coined to illustrate the effects of digital exchange on human health and the environment.
There are ongoing debates on the exact extent of the impact that mining has on the environment. Even though it is agreed upon that crypto mining damages the environment, the impacts are markedly higher in places where the mining is dependent on dirty energy sources, such as the coal-fueled crypto mines in Mongolia. Coal energy sources offer prices that are 30% cheaper than the average energy consumption rates for industrial firms. With that being said, any cryptocurrency mined in China will produce four times as much CO2 pollution as the volume produced by renewable energy sources in Canada.
Sustainable way forward
With the growing popularity of cryptocurrency, as demonstrated by it entering more mainstream markets and being embraced by traditional financial institutions, we can surely foresee that crypto isn’t going to go anywhere anytime soon. With the damage that it currently does to the environment, it’s also evident that it’s not sustainable, for now.
There are several promising figures that show a sustainable way of going forward with the crypto mining industry.
Recent figures show that crypto-mining facilities are looking into subsidizing the development of renewable energy resources in order to seek the cheapest resource to optimize the consumption value. The relationship between renewable energy and crypto-mining is well demonstrated in the bitcoin mining operations in China. The provinces hosting the most crypto-mining facilities correlate with the ones producing energy with renewable resources.
80% of China’s bitcoin mining operations were based in Sichuan in 2017 – a province that generated approximately 90% of its energy production from renewable resources, thereby accounting for 43% of global Bitcoin mining operations at the time.
The profitability of cryptocurrency mining is heavily dependent on its market value coupled with the price of electricity. If the value of a cryptocurrency decreases and goes below its cost of production, mining becomes unprofitable due to the large costs of the energy it needs. The most well-off crypto-miners work at the lowest cost by accessing the cheapest electricity capable of achieving intense use. As a result, miners are finding inexpensive energy markets while taking advantage of policy conditions that do not control how energy can be consumed.
Going forward, the crypto industry can become more sustainable if it commits to using renewable, clean energy in order to sustain itself. As the statistics show, in the long run, renewable energy is the future of electricity consumption. Utilizing the low-cost nature, crypto miners have an incentive to continue mining while minimizing their damage to the environment. However due to the decentralized nature of crypto that makes it so attractive to many will come as a detriment to the initiative, as at the end of the day there’s no one to make the decision to go green but the individual miners.