First victim of Bitcoin: fiat currencies or the planet’s environment? – Doha News
Bitcoin is under close scrutiny for its large environmental footprint.
As millennials point to cryptocurrency as the future of money while simultaneously campaigning for better environmental policies, some have questioned whether the two goals contradict each other.
Unlike fiat money, cryptocurrency uses a large amount of energy to function. This is because the extraction process requires intensive computing power.
US Senator Elizabeth Warren criticized Bitcoin, saying it “consumes more energy than entire countries.”
In June, Elon Musk, considered a supporter of cryptocurrency, announced that Tesla would no longer accept Bitcoin as a payment method due to its environmental impact. This caused the price of Bitcoin to drop. He revised his original position a month later, tweeting that Tesla would accept Bitcoin as long as miners used clean energy.
The question remains, is cryptocurrency a contributor to the climate crisis, or could it be our unexpected savior?
How is cryptocurrency mined?
The most important factor contributing to the huge energy consumption of cryptocurrency is the mining process. To generate a coin, miners must solve complex mathematical puzzles. The mining process makes it possible to verify the legitimacy of transactions on the blockchain network. This is necessary because it avoids double spending when someone uses the same coin twice, thus doubling their money.
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The first miner to solve the puzzle is rewarded with a cryptocurrency such as Bitcoin. It is an incentive for miners to reward them for their efforts and allow more coins to enter circulation.
Why does mining use a lot of energy?
The miners rely on extremely powerful computers to win the race and become the first person to solve the puzzle. These require expensive graphics cards and high power consumption. Often, miners will have buildings filled with computers running simultaneously to extract as many coins as possible. Such computing power has an impact on the planet’s natural resources.
This is a partially intentional process by the creators of the cryptocurrency. If the mining of a coin is cheap and easy, there will be a large amount of coins in circulation. If supply exceeds demand, the price of the cryptocurrency may drop. To avoid this, cryptocurrencies are designed to require a huge amount of energy, making the process expensive and thus avoiding a spike in supply.
How much energy does Bitcoin consume?
So how much energy is consumed by millions of computers constantly operating at their maximum capacity?
The University of Cambridge estimates that Bitcoin alone uses 121 terawatt-hours (TWh) of electricity per year. If it were a country, it would be in the top 30 of the biggest energy consumers.
The single bitcoin transaction uses 1,544 kilowatt hours (kWh). That’s almost the equivalent of two months of energy consumed by the average American household.
Some have criticized the University of Cambridge study, with Don Wyper, COO of DigitalMint, calling it “misguided.”
“I think the latest Cambridge University study is wrong, because bitcoin acts like ‘digital gold’ and therefore should be compared to the energy consumption of other store-of-value assets … The mining industry gold consumes 475 million gigajoules [131 tWh] electricity value per year.
However, unlike gold mining, cryptocurrency is a digital process that does not require physical mining and transportation of the currency.
What are we doing to fight Bitcoin’s energy consumption?
Earlier this year, China completely banned cryptocurrency mining. It has been estimated that 65% of Bitcoin mining took place in the country in 2020. Some activists have called on other countries to follow in China’s footsteps.
Yet many claim that such measures are too extreme.
Instead, it is believed that cryptocurrency will inevitably switch to using renewable energy due to its decreasing cost.
Miners operate as for-profit businesses, aiming to mine as much currency as possible with the lowest operating cost. However, in its current state, renewable energies remain more expensive than traditional energies.
As a result, it is estimated that Chinese miners will move their operations to Kazakhstan, which is geographically close and has lower electricity costs than most countries. However, unlike China which is the largest market for renewable energies, Kazakhstan relies heavily on non-renewable energies.
Can Bitcoin Become Renewable?
Despite the short-term difficulties, the opportunities for mining clean cryptocurrency have multiplied around the world.
El Salvador could soon lead the world in clean mining of Bitcoin. In June, the country became the first to accept currency as legal tender. Its president, whom Al Jazeera recently called a “Bitcoin messiah,” has lobbied for the use of renewable energy in the country.
Two months ago, he announced on Twitter that El Salvador will use renewable energy from volcanoes to provide a â100% clean, 100% renewableâ hub for Bitcoin mining.
While Bitcoin requires intense computing power, several cryptocurrencies have also grown in popularity because they require less operational energy. They are considered an environmentally friendly alternative to Bitcoin. Experts believe the threat of other cryptocurrencies replacing Bitcoin could accelerate the currency’s transition to renewable energy.
Several global initiatives are currently underway to fuel the clean energy transition. In December 2020, the payments company Square, founded by Twitter CEO Jack Dorsey, announced a $ 10 million initiative to support companies contributing to the adoption of renewable energy in the industry. Additionally, the Crypto Climate Accord hopes to ensure that all Bitcoin operations will run on renewable energy by 2030.
Can Bitcoin Help Solve the Climate Crisis?
Such initiatives will not only make cryptocurrencies environmentally friendly, but instead could help the world switch to renewable resources faster than expected.
As more companies and countries create financial incentives for clean mining of Bitcoin, the price of renewables could potentially fall below coal and other depleted resources.
As a result, we could see renewables reaching a dominant presence due to demands from Bitcoin miners. This concept is not new, although it has gained popularity following recent initiatives that reward companies using own resources.
While Bitcoin relies on significant processing power, it could help accelerate the use of renewable energy. Currently, this is not the case, although recent measures may help catalyze this transition.
Do you think Bitcoin can help us solve the climate crisis? Or is the short-term impact too harmful? Let us know in the comments.
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