DECENTRALISATION. Cryptocurrencies are often criticised for having a negative impact on the environment and climate. This is particularly the case with Bitcoin in relation to carbon emissions and ecological footprint. Despite such problems, in the future different cryptocurrencies will be able to contribute to climate transformation and greener economic interactions.
One of the latest examples of a larger purchase of Bitcoin is the case of Tesla, owned by Elon Musk, buying Bitcoin worth of 1,5 billion American dollars. Criticism towards Tesla is that a company promoting climate sustainability and fossil-free energy is investing in a cryptocurrency that is increasing Tesla’s carbon footprint. While Musk is positive towards Bitcoin, another famous worldwide businessman Bill Gates has proclaimed himself a “Bitcoin sceptic” and criticised Bitcoin’s impact on climate.
Concerning this development, questions have been raised within academic institutions and crypto-currency communities. Should cryptocurrencies be banned or taxed? Or if there are better and more climate-friendly alternatives? Regardless of one’s opinions, here are some of the following facts and figures to be considered when it comes to criticism against cryptocurrencies concerning the environment and climate.
For a start, banning cryptocurrencies is hard and more or less impossible in practice. Facebook is banned in China but still being used among millions of Chinese via an alternative, and thereby illegal, methods. Bitcoin mining is already prohibited in Venezuela, and the government opposes Bitcoin itself. But governments who have made such decisions and policies are very inefficient in implementing them.
Another idea is to tax cryptocurrencies with a special carbon tax. The idea of a carbon tax for crypto may sound suitable and progressive, but the similar principle could then be applied to paper money and e-mails, or even on Instagram stories and Zoom calls. After all, much of the Internet traffic is used for emails, and trees have to be cut down for printing paper money.
The main criticism regarding Bitcoin is that its blockchain system for computing, verifications and transactions consumes enormous amounts of electricity. This process is more famous as “mining” where many computers verify every transaction through interactions and mathematical methods. For example, according to the Cambridge Centre for Alternative Finance, Bitcoin currently uses more electricity than the entire countries of Austria and Greece combined.
A perceived problem is that when the price of Bitcoin rises, miners can use their higher revenues to reinvest in more mining machines and computers, increasing both their profits but also their overall carbon emissions. It has been estimated that one Bitcoin transaction generates around the CO2 equivalent to around 700 000 – 750 000 swipes with a Visa credit card.
Most Bitcoin is mined in China, where despite claims of renewable energy, the mining process often is supplied by coal power. Some US states as Washington, known for low electricity costs in the country, have created a higher cost electricity tier for some miners living and working there after their mining process led to overwhelming local energy grids. Others as the Candian province Quebec, has issued a decision to prevent new mining within the province.
Crypto indeed has problems, so what is the solution? For a start, an important insight is that not all cryptocurrencies are the same. For example, Seeds is designed as a “cryptocurrency for the climate” and to facilitate a “regenerative civilisation”. The SEEDS community is using Seeds to enable and reward projects regarding food security and social wellbeing.
Another solution is the “proof of stake” system which is different to Bitcoin’s “proof of work” (mining) system. A Proof of Stake cryptocurrency networks and communities as Seeds and Tezos do not depend on electricity costs. Instead, they depend on direct economic incentives where the stakeholders can be rewarded and punished for their performances as validators. Thereby, cryptocurrencies as Tezos are using a computing and verification system that is less damaging when it comes to climate change.
In Bitcoin’s defence, it should be said that not all studies about Bitcoin’s impact on climate change have been reliable in the end. For example, one study from 2017 “predicted” that Bitcoin energy usage would lead to a global energy shortage in 2020! However, the promise of Bitcoin becoming “greener” has also not been realised. Instead, Bitcoin is less green and climate-friendly today concerning overall numbers of transactions, energy consumption and sources of energy.
If Bitcoin is going to be a part of the solution instead of being part of the problem, the alternative is to become greener when it comes to energy usage, something that Bitcoin users and miners have the responsibility for. This could be achieved via decentralised democratic community-based decision-making where different ideas and proposals should be discussed and decided. For example, if the proof of stake system should be used.
Despite negative and valid criticism regarding climate and environmental aspects, cryptocurrencies are here to stay as part of the overall decentralisation process. Even on a more sustainable and regenerative planet, people will still need to trade and interact with each other. Therefore, our planetary future depends on that more cryptocurrencies can operate on an eco-friendly basis.