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- Bitcoin and other proof-of-work cryptocurrencies use a lot of energy to operate
- Every year, the bitcoin network generates 11.5 kilotons of e-waste
- Some proponents claim that renewable energy can meet up to 74% of bitcoin’s energy needs
Some people, including Elon Musk, have criticized digital currency for consuming an excessive amount of energy. The rise of Bitcoin has had some unexpected environmental consequences. It takes a lot of energy to mine bitcoin and support it. According to The Independent, bitcoin’s underlying network consumes nearly as much energy as Argentina’s entire economy. The fact that much of the mining takes place in China exacerbates bitcoin’s environmental impact. Given that coal currently provides two-thirds of China’s electricity, this is a major concern. The rise of bitcoin has sparked speculation and debate about the environmental impact of the collective energy required to power the virtual currency in the face of global warming.
Why does mining necessitate the use of energy?
To comprehend how a digital currency could harm the environment, you must first comprehend how it is gathered, or in this case, digitally mined. Dr. Dmitriy Krichevskiy explains bitcoin mining as essentially finding these solutions to mathematical problems. Krichevskiy teaches economics at Elizabethtown College as an associate professor. However, the number of, say, bitcoins is limited because these problems become increasingly difficult as they become more complex. The competitive nature of proof-of-work blockchains is to blame for these exorbitant energy costs. Rather than storing account balances in a central database, cryptocurrency transactions are tracked by a distributed network of miners who are compensated for their efforts through block rewards. These specialized computers are in a race to create new blocks, which can only be done by solving cryptographic puzzles.
Because it does not rely on a trusted intermediary or a single point of failure, cryptocurrency supporters believe it has numerous advantages over centralized currencies. However, mining puzzles necessitate numerous energy-intensive computations. Bitcoin consumes more energy than the Netherlands or the Philippines, according to a University of Cambridge study. This has alarmed some businesses and entrepreneurs, including Tesla CEO Elon Musk, who tweeted in May that the company would stop accepting bitcoin until mining transactions could be done with more environmentally friendly energy.
One major source of concern among environmentalists is that as the price of cryptocurrency rises, mining becomes less efficient. The mathematical puzzles used to create blocks in bitcoin become more difficult as the price rises, but transaction throughput remains constant. This means that in order to process the same number of transactions, the network will require more computing power and energy over time.
Digital Currencies and Fossil Fuels
All of this has combined to create a link between cryptocurrencies and fossil fuels that many investors have yet to recognize. According to University of Cambridge researchers, around 65 percent of bitcoin mining takes place in China, a country where coal is used to generate the majority of its electricity. Coal and other fossil fuels are currently a major source of electricity for cryptocurrency mining and other industries around the world. However, due to the carbon dioxide produced by the process, coal combustion is a significant contributor to climate change.
Supporters have downplayed cryptocurrency’s energy consumption, claiming that mining operations tend to cluster around areas with abundant renewable energy. According to reports published in 2019, 74.1 percent of the electricity used to power the bitcoin network came from renewable sources, making bitcoin mining more renewables-driven than almost every other large-scale industry in the world.
Cryptocurrency issues
This is a problem that affects all digital currencies, not just Bitcoin. When the currency is in high demand, if it is designed correctly, it will become more scarce, requiring more energy to mine. Because there is a finite amount of cryptocurrency and transactions are recorded on an open ledger, according to Krichevskiy, it can solve many of the problems that traditional money has. The currency, however, is extremely volatile, and because it is an international currency, it is difficult to track and regulate.
He believes that governments will try to regulate it, whether for tax reasons or because of the environmental concerns that it raises. We’ll see how this develops because it’s a uniquely global issue, a uniquely global benefit, and a uniquely global problem.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
