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With the world heading towards digitization, the use of money and transactions is also entering a new era characterized by a new form of digital currency, also referred to as cryptocurrencies. Time and again we have heard about cryptocurrencies like Bitcoin, Ethereum, Litecoin or Monero used as the digital-based-money. Among those, Bitcoin, which was created in early 2009 as a decentralized cashless payment system, is the first and best-known blockchain application. It is now accepted by over 100,000 merchants and vendors worldwide[1]. Many consider cryptocurrencies   to be the future of monetary transaction due to their beneficial potential of not being controlled by any central authority, but working primarily as a decentralized, peer-to-peer network of exchange, recorded and produced by the cryptocurrency community as a whole[2].

However, the computationally intensive validation process of many cryptocurrencies including Bitcoin called ‘‘mining’’ requires specific hardware and vast amounts of electricity to reach consensus about ownership and transactions[3]. The impact of crypto mining on climate change is not as intuitive as in the field of oil and mineral extraction. Nevertheless, the potential energy consumption during mining of cryptocurrencies could lead to increased carbon emissions and climate change. For instance, the considerable and unsustainable usage of electricity in Bitcoin transactions, as  reported by ING bank is shown in Fig. 1 where they argued that a less energy intensive method of verifying the transaction ought to be introduced (Truby, 2018)[4]. As a matter of fact, globally ~314.2 billion cashless transactions are carried out every year, of which Bitcoin’s share was ~0.033% in 2017[5]. Hence, it is becoming a matter of concern for many skeptics, academics, and environmentalists due to the large carbon footprint for such a small share of global cashless transactions, and the potential for it to be more broadly used under current technologies5. Recently, Tesla’s CEO Elon Musk’s decision to discontinue their use of bitcoin as payment due to climate change concerns has renewed examination of the cryptocurrency’s environmental effects[6].

Figure 1: Comparative transactional energy consumption (Source: Digiconomist, ING)

Some researchers have even claimed that cryptocurrencies like Bitcoin alone could bust global climate goals[1] and consider it as “power-hungry”. Researchers have suggested that the emissions from mining Bitcoin – where computing power is used to solve mathematical problems to create new currency – may be as high as 63megatonnes  of CO2 per year [7] . According to reports from Digiconomist, the increased use of bitcoin triggered a surge in its estimated annual energy depletion from 25 Terawatt hours to 30 Terawatt hours within two months, which is equivalent to the energy use of more than 19 European countries, and approximately 0.7 percent of total energy demand in the United States [8],[9]. Analysis by the University of Cambridge suggested that the Bitcoin network used more than 121 terawatt-hours (TWh) annually, which would rank it in the top 30 electricity consumers worldwide if it were a country[10]. Because of such a huge amount of energy necessary to run the algorithms that power digital assets like Bitcoin, they have a significant environmental imprint. Bitcoin’s environmental impact is further exacerbated by the fact that a majority (75%) of miners are based in China, where over two thirds of power is from coal9,10. Researchers’ have warned that “Without appropriate interventions and feasible policies, the intensive bitcoin blockchain operation in China can quickly grow as a threat that could potentially undermine the emission reduction effort taken place in the country”[11]. Hence, it is evident that for Bitcoin to be a climate friendly innovation, it should be adopted using clean sources of energy in a more efficient way. Also, it is necessary to discover alternative methods of mining. However, going for other alternative payment system could be the climate smarter choice. Another way out for policy makers could be making people more aware of the environmental consequences of buying cryptocurrencies if they cannot ban crypto mining completely. No doubt digitization in each sector and system including cryptocurrencies is making the world smart digitally, while climate friendly digitization could make it sustainable.

References

[1] Cuthbertson, A. Bitcoin now accepted by 100,000 merchants worldwide. International Business Times (4 February 2015); https://go.nature.com/2CcKFXs

[2] Krishnan, Hari; Saketh, Sai and Vaibhav, Venkata. “Cryptocurrency Mining – Transition to Cloud.” International Journal of Advanced Computer Science and Applications, Vol. 6 No. 9 (2015).

[3] Gallesdorfer et al, 2020),

[4] Jon Truby, Decarbonizing Bitcoin: Law and policy choices for reducing the energy consumption of Blockchain technologies and digital currencies, Energy Research & Social Science, Volume 44, 2018, Pages 399-410, ISSN 2214-6296, https://doi.org/10.1016/j.erss.2018.06.009.

[5] Bitcoin Energy Consumption Index (Digiconomist, 2017);  https://digiconomist.net/bitcoin-energy-consumption

[6] https://www.bbc.com/news/business-57096305

[7] https://www.nature.com/articles/s41558-018-0321-8

[8] Egiyi, Modesta Amaka and Ofoegbu, Grace Nyereugwu, Cryptocurrency and Climate Change: An Overview. International Journal of Mechanical Engineering and Technology. 11(3), 2020, pp. 15-22.

http://www.iaeme.com/IJMET/issues.asp?JType=IJMET&VType=11&IType=3

[9] Atkin, E. (2017, December 5). The Environmental Case Against Bitcoin Mining the cryptocurrency requires a staggering amount of energy—contributing to global warming and providing little public benefit. Retrieved from The New Republic: https://newrepublic.com/article/146099/environmental-case-bitcoin

[10] https://www.independent.co.uk/climate-change/news/bitcoin-bad-environment-mining-cryptocurrency-b1846773.html

[11] https://www.bbc.com/news/business-56671488