Recently, Bitcoin has hit an absurd all time high with a price of $64,000, and has converted people into millionaires overnight. Given that Elon Musk and his tweets are always a cause of hysteria for all cryptocurrencies alike, what does it have to do with them wreaking havoc on the environment?
Well, it turns out that actually do have a lot to do with the environment. Taking the above-mentioned example of Bitcoin reaching $64,000 in value, it is of course an undoubted fact that the progress Bitcoin and cryptocurrencies have made over the past decade have been astronomical, but there is a hidden cost to them that has not yet been perceived.
A demand in cryptocurrencies like Bitcoin, Ethereum and Dogecoin means that the amounts of each cryptocurrency in circulation need to be managed, in order to make sure that their price remains in proportion to the number of units available, and therefore the amount of units that the market deems to demand as such.
This process, therefore, warrants the further “mining” cryptocurrencies, i.e. making changes in their respective blockchains to release newer units of cryptocurrencies into circulation. And this process quite perceptibly is a task of mammoth like proportions. Miners need to keep entire networks and arrays of complex machinery churning 24/7 into 365 days to make sure that the newer units find themselves in circulation. It is this process of mining new units that consumes tremendous amounts of commercial electricity, which is so much so that they have started to put an adverse strain on environmental conditions.
For drawing up comparisons, let us take Bitcoin as our unit for comparison. Due to a sheer increase in its hype, and therefore its demand, Bitcoin mining now takes up more energy than the entire county of New Zealand in terms of CO2 emissions per annum. Furthermore, the mining process takes up approximately 77 TWh of commercial energy, which is literally the same amount of energy the entire county of Chile consumes in a year. However, according to the Cambridge Bitcoin Electricity Consumption Index that had been established to study the very same case, calculates that it takes upto 110 TWh, which is more than the electricity consumption of the Netherlands.
Looking at these figures, one can obviously gauge how exhaustive Bitcoin mining is, but allow me to put things into perspective. The figures stated above? Those figures technically mean that Bitcoin mining is responsible for 0.5% of the world’s energy consumption. Yep, 0.5% of the world. Below is a graph by the very same index, and shows how Bitcoin mining and a rise in its price has impacted energy consumption estimates:
So, why does Bitcoin mining so energy exhaustive? Well, its because of the technology which demands so. Bitcoin, or cryptocurrency mining in general, is more like a complex calculus sum for a kid in his final year of high school. You can spend all night on it, but you won’t figure out where you went wrong. The same is the case here. Cryptocurrency transactions require huge amounts of complex algorithmic calculations to process and compute, which is why the complex network of machines come into play. These machines churn day in and day out in order to make those calculations and allow the transactions to go through, since the blockchain technology needs to be altered every single time when a newer batch of units is added into circulation, or to keep track of the code of all the cryptocurrency units that exchange ownership every other second.
Additionally, the same servers also need to act as storehouses for a batch of cryptocurrencies, and are hence super heavy in terms of the data storage each cryptocurrency takes up in those very servers.
The most honest question someone can ask here is, “Can’t you just improve the algorithm and reduce the energy consumption?” The sad thing is that you can’t, since the defined algorithms are the ones that HAVE to be followed in order to maintain the efficacy of the security in transactions and payment that cryptocurrencies possess.
So, what if they consume so much energy? Global industries like manufacturing firms, construction firms, and processing industries do the exact same thing, and are also much less transparent in the process while doing so. Here’s the catch: The power consumption of cryptocurrencies is alarming, sure, but the source of the generation of said energy, in the form of electricity, is the linchpin of this equation.
Most countries across the globe depend upon coal for production of commercial energy, and as a result cause a lot of pollution every single year. As of the last normal year, i.e. of 2019 (since 2020 witnessed global shutdowns due to the pandemic) coal accounted for approximately 40% of the world’s energy generation, and also contributed more than 40% of energy-based CO2 emissions.
The above graph provided by the IEA (International Energy Agency) depicts the amount of energy related CO2 emissions by the world from 1990-2019. As per the graph, approximately 33 Gt CO2 produced by the world in 2019, and as per our above-mentioned figure of coal being responsible for 40% of it 2019, it makes it the figure come out somewhere near the ballpark of 13.2 Gt CO2 emissions in 2019. And after having taken a look at these figures, one can safely say that they are bound not to go anywhere but up.
The place where Bitcoin mining is happening the most is in China, where majority of the electricity generation is derived from processing coal. It will be in the miners’ best interests to go to places wherein the costs of energy will be the lowest, and because of this very reason people from around the world are trying to establish their servers in China so that they can leverage cheap costs of electricity into mining more of Bitcoin and other cryptocurrencies.
So, what can we really do to stop energy consumption rates from soaring because of the mining processes of various cryptocurrencies? Well, we can ban Elon Musk’s Twitter account for starters, but we all know that the next time #occupywallstreet happens, we won’t have the richest man in the world backing us against the greed of Wall Street, or to just even provide us with irrelevant Doge memes.
Since governments are already perverse towards the gradually increasing acceptance of cryptocurrencies within society, they will either try and pass some legislation that shall bring about a cap on the amount of energy consumed by cryptocurrency mining, or try generating more electricity to make sure disparities fuelled by energy consumption do not arise, or just do any sort of an unpredictable thing which they think is right. But for the coming time period, Bitcoin is king, crypto is the future, and the lot of them isn’t going anywhere soon enough.