Are Cryptocurrencies Harming The Environment?
Bitcoin, the original type of currency, has soared in value since it first hit the market in 2009. In fact, if you had bought $1000 worth of Bitcoin back then, you would have made more than $35 million by today’s valuation. It is now the ninth most valuable asset in the world, ahead of Tesla and Facebook, and along with all the other cryptocurrencies, such as Bitcoin Cash, Ethereum and Litecoin, they account for a combined market cap of $1.4 billion, just as much as Alphabet (Google).
As cryptocurrencies continue to increase drastically in value and popularity, questions are being raised as to what the environmental impacts of digital money are. So, let’s start from the beginning:
Why is cryptocurrency so popular?
The popularity of crypto makes more and more people want to jump on the bandwagon in fear of missing out on an incredible opportunity to make money fast. But there is more to cryptocurrency than the possibility to make money.
In general, cryptocurrencies are safe because the encryption used for transactions is extremely complex, therefore very difficult to hack. It also doesn’t require you to share your personal information when trading, which is an appealing point to investors. All the information about buying, selling and storing crypto is available online and you can see transactions happening in real time. Buying, selling, making transactions and tracing the value of your portfolio is also one-click away.
However, none of this makes crypto any less risky: because it isn’t regulated by any government or central bank, its value can be unpredictable and extremely volatile.
How does cryptocurrency work?
Cryptocurrency is basically a digital currency that you can buy and store online in your own digital wallet. It is a decentralised version of money, because no one holds any power towards its value or regulation except for computer algorithms and its users. That means it functions solely based on demand: the more people buy crypto, the more it is worth.
Crypto is built around blockchain technology: a list of records, also called blocks, that is growing all the time and that links and secures each type of currency. It utilises cryptography to collect information about every transaction and to store it safely on a shared system, so that everybody can see all the transactions. The funds are then stored on various computers.
How does crypto harm the environment?
Cryptocurrency is created through solving mathematical puzzles using computers. Anyone from anywhere in the world can create (mine) cryptocurrency, and these people are called miners. Almost every 10 minutes, a miner solves a puzzle and is rewarded in bitcoins. Every time a puzzle is solved, a new puzzle is generated, and this process is constantly on repeat. These puzzles require a large amount of computer processing power, which translates into incredibly high energy consumption.
The amount of energy bitcoin consumes started to be concerning in 2017, when bitcoin reached a peak, making its energy needs as high as the energy needs of a small country. Since then, bitcoin’s energy consumption has more than quadrupled. The bitcoin network currently consumes 120 gigawatts per second, and 63 terawatt-hours per year. This is almost as much as the energy required for the entire country of Argentina, and actually surpasses the energy levels of countries such as Belgium, Finland and the Netherlands.
Because Bitcoin is generated and supported through energy, miners tend to choose the cheapest energy to power their computers. Most of the miners are based in China, where coal is the most popular power source, which makes bitcoin’s environmental footprint even bigger.
What is harmful for the environment isn’t cryptocurrency in itself, but the non-renewable energy used to power computers supporting it. However, 76% of cryptocurrency miners are already using electricity from renewable sources, according to a University of Cambridge study. This trend is expected to continue, as more mining facilities are making efforts to go green. In Iceland and Norway, where nearly 100% of all energy production is renewable, miners are using hydro-electric and geothermal energy to power their machines.
There are also alternative cryptocurrencies being created through different technologies that require less power, such as Cardano, which is claimed to be 4 million times more energy efficient than Bitcoin. As Bitcoin and other cryptocurrencies are expected to continue to grow over the next few years, so will their energy consumption and, ultimately, their environmental footprint. This makes the adoption of renewable energies for mining even more important, and leaves the door open for GreenTech startups that are looking to explore how to make crypto eco-friendly.
If you have any questions or would like advice on how to grow your GreenTech startup, make sure to get in touch with us here. At Storm4, we are in contact with the best GreenTech talent and companies. We believe with our expertise in the GreenTech market, we can help you build a successful business with sustainability at its core.