For the past month or so, I have been receiving countless social media advertisements on the topic of investing in bitcoin and various forms of cryptocurrency. However, I didn’t truly understand the concept of cryptocurrency and how it works nor did I understand the environmental implications of currencies like bitcoin. As such, let me break down what I’ve learnt thus far:

Bitcoin, like all other forms of cryptocurrency are mediums of exchange that only exist digitally (Cho, 2021). The appeal of the cryptocurrency is that these currencies are decentralised such that there is no central authority to form a regulating body over these currencies, reducing transaction costs and latency, and preserving forms of anonymity for the dealers (Farell, 2015). Surely, this would mean that the virtual transaction of money would reduce the need for producing physical currency, which would produce less impact on the environment?

This was not the case however as the decentralised nature of the cryptocurrency required a certain mechanism called ‘mining’ to be implemented to ensure the legitimacy of the exchange. In the case of Bitcoin, Bitcoin miners use high-powered computers to solve cryptographic puzzles that validates the transaction data (Mohsin, 2021). Mohsin (2021) further argues that because of the competitive nature of these proof-of-work blockchains, crypto mining has resulted in stratospheric energy expenditures.

For example, in June of 2018, each bitcoin mined required 60,461 kWh of electricity, with the total consumption of electricity just from mining bitcoin amounting to 47.9 billion kWh for the year (Goodkind et al., 2020). Furthermore, it has also been argued that bitcoin emissions alone can push global warming above the 2 degree celsius mark (Mora et al., 2018). To put things into a broader perspective, bitcoin is one of the many existing cryptocurrencies that are present in the market. As such, the energy-intensive mechanism of the entire cryptocurrency mining industry definitely creates an insurmountable amount of pressure on the environment.

Looking forward, I believe that the acceptance of bitcoin as legal tender by nation states such as El Salvador (Youkee, 2021) could potentially push forward the usage of cryptocurrencies, increasing the number of crypto transactions which would ultimately increase the rate of bitcoin mining. Thus, the environmental pollution related to cryptocurrency mining is very much real and not something to take lightly, especially with the rise of the digital age where anonymity is highly prioritised.

 

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