By Kiran Bishop, Sidwell Friends School, and Kit Levy, Sidwell Friends School
The recent rise in popularity of cryptocurrencies like Bitcoin and Ethereum begs the question: “How environmentally friendly are cryptocurrencies really?” To understand their impact on the environment, one must first understand what a cryptocurrency is and the nuances between the different tokens and coins.
Cryptocurrencies are a form of payment that can be used online to buy goods or services. They are set by cryptography, which is the writing and solving of complex codes or algorithms. This process allows cryptocurrencies to address the “double spending problem” — the concern that the same crypto token could be used multiple times. To ensure that this reuse does not occur, cryptocurrencies use a specific cryptography technology known as blockchain.
Blockchain was invented in 1991 by Stuart Haber and W. Scott Stornetta, and essentially holds information in groups known as “blocks.” These “blocks” are then chained together to form an immutable string of data. Different types of information can be stored in these “blocks,” but cryptocurrencies typically use the blockchain as an online ledger that records transactions.
The most famous cryptocurrency by far is Bitcoin and was started in 2009 by Satoshi Nakamoto, who first put blockchain into action. New Bitcoins are added to circulation through a process known as “mining,” which occurs when computers solve a complex puzzle in which they have to guess a hash, a 64-digit hexadecimal. If the computers solve the hashing problem, they complete a “block” in the blockchain and are rewarded with Bitcoin, but only if they find the solution before other miners.
This sort of consensus mechanism, in which miners are rewarded based on the number of coins they mine, is called “proof of work,” and many other large cryptocurrencies also use it. Of course, with all this mining comes a lot of expended energy. Bitcoin is estimated to consume 112.57 terawatt-hours of energy each year, which is more than what countries like Chile and the Philippines use. Another way to put it is that one single Bitcoin transaction expends the same amount of energy as 680,000 Visa transactions or 51,210 hours on Youtube. Just under 40% of Bitcoin mining is done with renewable energy, leaving the lion’s share of the work to polluting sources such as coal and oil. When coal is burned, it releases carbon dioxide into the atmosphere, which then contributes to the warming of the Earth.
Other cryptocurrencies do not expend quite as much energy as Bitcoin, partially because they are not as big, but also because they use different forms of Blockchain technology that require less energy, like “proof of stake,” which rewards miners based on how much they have invested in the company, not on how many coins they find. Proof of stake is not only a more efficient consensus mechanism, but it is also a more environmentally friendly alternative. Ethereum, the second most popular cryptocurrency, has announced that it will switch to the proof of stake consensus mechanism, stating that in doing so, it will be able to cut its carbon footprint by 99.95%.
There are numerous ways to reduce and even eliminate cryptocurrencies’ impact on the environment. First, Bitcoin and other cryptocurrency miners can switch to renewable energy, which are not only less harmful to the environment, but also more readily available in many places that mine Bitcoin. Mike Colyer, CEO of Foundry, a digital currency group, expressed his opinion about how Bitcoin could aid in the transition to more renewable energy everywhere, stating, “It allows for a faster payback on solar projects or wind projects… because they would [otherwise] produce too much energy for the grid in that area.”
At the end of the day, Bitcoin and other cryptocurrencies, despite being technological breakthroughs, are not all good for the environment. The environment should come first no matter how groundbreaking the technology — after all, there would be no way to use blockchain if we completely destroy our Earth.
Work Cited:
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