Bitcoin's Impact On Climate Change: Myths & Realities

Table Of Content

• Content

  • Introduction

  • What is Bitcoin?

  • How do bitcoins enter circulation?

  • Bitcoin’s environmental impacts

    • Energy consumption and greenhouse gas emissions

    • Water issues and e-waste

  • NFTs

  • How can cryptocurrencies be more sustainable?

• Conclusion

• FAQ

• External Links

In April of 2011, one bitcoin was worth exactly one dollar. In April, the price of one bitcoin hit an all-time high of about $65,000, and as of the time of this writing, the price of one bitcoin is roughly $48,000. The fact that some bitcoin investors have become billionaires overnight has piqued the interest of an increasing number of individuals in the prospect of becoming wealthy by investing in cryptocurrencies like Bitcoin. On the other hand, the expanding popularity of Bitcoin may make it difficult for the world to forestall the most severe effects of climate change. This cryptocurrency uses a lot of energy, and its effects on the environment are quite far-reaching.

Before we can begin to grasp Bitcoin's effects on the environment, we must first understand what Bitcoin is and how it operates.

What is Bitcoin?

A cryptocurrency is a digital means of exchange that only exists in digital form; it does not have a physical equivalent, such as a coin or a note, and there was no initial investment of money to get it started. "It's a marketplace, and as long as people are prepared to ascribe value to it, then that's it," said R.A. Farrokhnia, a professor at Columbia Business School and the executive director of the Columbia Fintech Initiative. Bitcoin is the world's most widely used cryptocurrency, accounting for more than half of all cryptocurrencies. It may be used to purchase a wide variety of goods and services, including automobiles, home furnishings, and even vacations. This month, the value of all the bitcoins in circulation was $903 billion.

Decentralized refers to the fact that no central authority, such as a bank or government, regulates cryptocurrencies such as bitcoin and ethereum. The benefits of doing business in this manner include the absence of transaction fees, the accessibility of the platform, and the simplification of complex financial dealings such as the transfer of funds across countries. Although transactions are recorded, the identities of the people carrying them out are not revealed. Because cryptocurrencies can't be tracked and there's no one in charge of how they're used, many bad people, like tax evaders, criminals, and terrorists, may use them for bad things.

Because cryptocurrencies don't exist in the form of actual money and they don't have a centralized authority, they had to devise a method to assure that their transactions are safe and that their tokens can only be used once. In 2008, an anonymous individual (or people) going by the name Satoshi Nakamoto (whose actual identity is still a mystery) came up with a solution to these problems, which led to the creation of bitcoin. The solution that Nakamoto came up with was a digital ledger system that generated confidence in the system via the use of mathematics and encryption, and it logged transactions in a distributed ledger called blockchain. A blockchain is a transparent database that is shared throughout a network. It records transactions in blocks that are connected together, and each block is linked to the one that came before it. Nodes are powerful computers that are linked to the other computers that make up the Bitcoin network. These nodes are responsible for running the Bitcoin software and validating transactions and blocks. Every node in the network has its own copy of the complete blockchain, which includes a record of each transaction that has been processed on it.

Nakamoto limited the total number of bitcoins that could ever be produced to 21 million. Although there is much conjecture about the mathematical theories that led to the selection of that number, the actual reason for its selection is unknown to anybody. As of this month, it is expected that there are now 18.8 million bitcoins in circulation, and it is expected that any remaining bitcoins will be issued by the year 2140.

How do bitcoins enter circulation?

Mining is essentially the process of verifying and recording new transactions on the blockchain, is how new bitcoins are created. Mining is also how new blocks are added to the network. New bitcoins are awarded to the miner who is the first to accomplish this goal.

Bitcoin miners are responsible for determining whether a collection of transactions that have been grouped together into a block are legitimate. This includes verifying anywhere from 20 to 30 different variables, such as addresses, names, timestamps, the amount of money that senders have in their accounts, whether or not they have previously spent it, etc. The miners then compete to see who can solve a conundrum or riddle the earliest to have their validation acknowledged first. To solve the puzzle, you will need to come up with a number that will only be used once. This number is referred to as the nonce, which stands for "number used once." When this number is combined with the data contained in the block and processed by a particular algorithm, it will produce a random 64-digit string of numbers and letters. This random number must be lower than or equal to the 64-digit goal specified by the system, also referred to as the target hash. Once the nonce that creates the desired hash has been located, the miner who won the competition will have their new block connected to the one that came before it. This will ensure that all blocks are connected in a chain. Because altering one block would affect all of the blocks that followed it, this makes it impossible to tamper with the network. The outcome is subsequently shared with the other blockchain network members, and all nodes update the version of the blockchain they are using. The term "proof of work" refers to either the process of validating work or the consensus method. The miner who wins gets new bitcoins and the transaction fees are paid for by the person who receives the bitcoins.

The higher the price of bitcoin is, the greater the number of miners fighting for it, making the puzzles more difficult. The Bitcoin protocol seeks to have blocks of transactions mined every 10 minutes; hence, the possibility of discovering the nonce in fewer than ten minutes grows if there are more miners on the network with greater computer power. The system then makes the target hash more difficult to locate by adding more zeroes to the front of it; the lower that number is, and the more difficult it is to produce a random number below it, the more zeroes that are added to the front of the target hash. The solution to the problem is simplified by the system whenever there is less computational power available to process it. The Bitcoin network will modify the difficulty of mining in order to maintain a block production rate of ten minutes.

The amount of bitcoin that miners are rewarded with is half every 210,000 blocks. According to the information provided by Investopedia, the mining of a single block back in 2009 resulted in the acquisition of fifty bitcoins. By November 2020, the reward for completing a block was 6.25 bitcoins, but the price of one bitcoin was around $17,900, so a miner would get $111,875 (6.25 times 17,900) for completing a block.

Miners with less computational capacity on their own may join mining pools, which do not need to reveal how many active miners they have. It is thought that there are one million bitcoin miners functioning and competing, but it is hard to be certain.

Farrokhnia said, "I have a sense that Nakamoto had the concept that everyone could be a miner—that you could mine with nothing more than your laptop." This was in reference to the idea that mining could be done with nothing more than a laptop. You started to witness the emergence of these mining pools as Bitcoin grew more popular and more people started using the system, and the rewards were genuinely worth money. This greatly raised the difficulty level. This spiraled into a vicious circle, an arms race for the most powerful computers; however, the more powerful the hardware miners have, the more difficult it is to find the nonce.

Because Bitcoin encourages strong competition, its effects on the environment directly result from this.

Bitcoin’s environmental impacts

Energy consumption and greenhouse gas emissions

The process of attempting to come up with the correct nonce that will yield the target hash is essentially a game of trial and error, similar to how a burglar could try several random passwords in order to get into your account. This process can take billions of attempts. It is estimated that each transaction using Bitcoin uses 707 kilowatt hours of electricity due to the large number of machines involved in the process. In addition, the computers soak up more energy due to the heat they produce and the necessity to keep them at a constant temperature. And although it is impossible to know exactly how much electricity Bitcoin uses because different computers and cooling systems have varying levels of energy efficiency, an analysis conducted by the University of Cambridge estimated that bitcoin mining consumes 121.36 terawatt hours each and every year. This is more than the total consumption of all of Argentina as well as greater than the consumption of Google, Apple, Facebook, and Microsoft combined.

And the situation will only worsen as miners are forced to continuously upgrade their computational power to remain competitive with one another. In addition, since incentives are consistently slashed in half, miners need to either process a greater volume of transactions or lower the amount of Bitcoin power they consume in order for mining to be financially feasible. Consequently, miners are required to search for the most affordable sources of electricity and upgrade to faster, more power-hungry machines. The amount of energy required to mine Bitcoin almost grew by 62 times between 2015 and March of 2021. According to Cambridge University research, only 39 percent of this energy comes from renewable sources, and most of it comes from hydropower, which may negatively affect ecosystems and biodiversity, according to Cambridge University research.

By 2020, China would control more than 65 percent of the global processing power used to run the Bitcoin network.Miners took advantage of China's inexpensive energy, which was generated either by hydropower or polluting coal power plants. However, China has recently tightened down on mining due to worries about the financial dangers associated with cryptocurrencies and the large energy consumption associated with mining, both of which go against China's carbon neutral objective by 2060. As a direct consequence of this, a significant number of Chinese bitcoin miners are exploring the possibility of relocating their operations to locations in other nations, such as the United States or Kazakhstan, both of which get the majority of their power from fossil fuels. To bolster their own economies, a number of states in the United States actively seek to recruit Chinese miners. However, if the miners cannot relocate, they plan to sell their equipment to various other miners throughout the world. Miners in the United States are now raising hundreds of millions of dollars to invest in bitcoin mining and turning old factories and power plants into large-scale bitcoin mining operations.

An example of this is the Greenidge Generation facility in Dresden, New York, which used to be a coal power plant but has now been converted to run on natural gas and has started mining bitcoin. As a result of becoming one of the biggest cryptocurrency miners in the United States between 2019 and 2020, the facility's emissions of greenhouse gases surged by nearly a factor of 10. Greenidge hopes to turn other power plants into mining operations by 2025 and has plans to quadruple its mining capacity by July, then double it again by 2022. Even while Greenidge committed back in June to becoming carbon neutral by buying carbon offsets, the reality is that if it weren't for bitcoin mining, the facility probably wouldn't be operational at all. Other polluting peaker plants, which are power plants that are normally only operated during peak demand for a few hours once a month, are being taken over for cryptocurrency mining so that they may run around the clock.

Earth Justice and the Sierra Club have sent a letter to the New York State Department of Environmental Conservation, requesting the department to refuse to renew Greenidge's permit, which would give the company permission to increase the amount of greenhouse gases it emits. They also cautioned that there are almost 30 power plants in upstate New York that have the potential to be converted into bitcoin mining operations. If this were to take place, it could undermine the efforts that the state of New York is making to eliminate almost all greenhouse gas emissions by the year 2050.

Because it translates into an estimated 22 to 22.9 million metric tons of CO2 emissions per year, Bitcoin's power consumption has serious consequences for climate change and the achievement of the objectives of the Paris Accord. This is because it is comparable to the CO2 emissions from the energy usage of 2.6 to 2.7 billion houses for one year. According to one analysis, Bitcoin might cause global warming to exceed 2 degrees Celsius. According to one estimate, bitcoin mining in China might be responsible for 130 million metric tons of CO2 emission by the year 2024. On the other hand, if more mining moved to the United States and other countries, this number would likely rise much more without more use of renewable energy.

Water issues and e-waste

Additionally, using significant quantities of water are power facilities such as Greenidge. Greenidge takes as much as 139 million gallons of fresh water from Seneca Lake every day to cool the plant. However, the water that is released back into the lake is between 30 and 50 degrees Fahrenheit hotter than the lake's average temperature, putting the wildlife and ecology of the lake in danger. Additionally, larvae, fish, and other forms of animals might be sucked in and killed by the massive intake pipes.

And even if it someday becomes feasible to do all bitcoin mining using renewable energy, the issue of electronic waste will always be a concern. In order to be successful, miners need to have access to the most advanced gear, which should be able to do the most number of calculations while using the least amount of power. This highly specialized hardware is rendered useless every one and a half years and cannot be rewritten to perform any other function. It is estimated that the Bitcoin network makes 11.5 kilotons of e-waste per year, which adds to the already large amount of e-waste we have a problem with.

NFTs

Since December, a new trend in the realm of art known as NFTs has added to the list of worries about the impact of cryptocurrencies on the environment. These are non-fungible tokens, digital files of images, music, films, or other types of artwork stamped with one-of-a-kind strings of code. People are able to read or duplicate NFTs, but there is only one unique NFT that belongs to the buyer. This unique NFT is recorded on the blockchain and safeguarded using the same energy-intensive proof of work procedure. NFTs are already selling for tens of thousands of dollars, and a digital artist by the name of Beeple just sold an NFT for more than 69 million dollars.

NFTs are generated on Ethereum, which is now the second most popular cryptocurrency after Bitcoin. The typical non-fungible token transaction causes the release of 440 pounds of carbon dioxide into the atmosphere, which is the same as traveling 500 miles in a vehicle fueled by gasoline. This results in emissions that are 10 times greater than the typical Ethereum transaction.

According to the calculations of one digital artist, the carbon footprint of a typical NFT is more than the amount of power used in a single month by a person living in the EU. Some artists, worried about the effects that NFTs have on the environment, are attempting to raise awareness and seek methods to create NFTs that are more environmentally friendly.

How can cryptocurrencies be more sustainable?

It would be difficult for the whole Bitcoin network to migrate to a more energy-efficient system because of the millions of dollars spent on hardware and infrastructure. This is particularly true given that there is no central oversight body to oversee the change. However, a number of efforts are underway that aim to lessen the impact that Bitcoin and cryptocurrencies in general have on the environment. Elon Musk, CEO of Tesla, recently discussed the energy consumption of leading crypto mining firms in North America with the CEOs of such companies. Because of this, a brand-new Bitcoin Mining Council has been set up to help make the energy industry more open.

The Crypto Climate Accord is another initiative that has the backing of 40 different projects. Its goal is for blockchains to run on energy derived from 100 percent renewable sources by 2025, and for the entire cryptocurrency industry to achieve net zero emissions by 2040.It intends to decarbonize blockchains by using more energy efficient validation methods; advocating for proof of work systems to be located in areas with abundant renewable energy that can be harnessed; and encouraging the purchase of certificates to support renewable energy generators in the same way that carbon offsets support environmentally friendly projects.

Ethereum has set a goal of reducing its energy consumption by 99.95% by 2022.This will be accomplished by moving to an alternative validation system known as proof of stake, which a few smaller cryptocurrencies have already implemented. Proof of stake is an alternative to proof of work that does not necessitate using computational power to solve puzzles to earn the right to verify transactions. Instead, the process is similar to that of a lottery. Potential validators have to risk some of their Ethereum currency (ETH) to be considered; the more coins they stake, the higher their chances of being chosen at random by the system to act as the validator. Participants in Ethereum 2.0 will be required to stake 32 ETH (each of which is worth approximately $3600 as of this writing), with multiples of 32 ETH required for additional validator opportunities. When a new block is validated and confirmed correct, validators will be compensated with coins and allowed to retain the coins they staked throughout the validation process.

Because validators would lose their stake and be kicked off the network if they cheated or allowed bogus transactions in the block, the system provides an extra layer of protection against fraudulent activity. Stakes grow more valuable as the price of ETH rises, which improves network security. However, energy requirements stay the same throughout this process. However, some individuals are concerned that proof of stake would give those who have the most ETH greater control, resulting in a less decentralized system.

According to Farrokhnia, "Blockchain is a very configurable and versatile technology." [Citation needed] You are free to construct it in any shape or form that is conducive to achieving your goal. Therefore, one example of a proof of consensus method is termed "proof of reputation." This mechanism works on the principle that "the more respectable you are, the more votes you have in verifying things." Blocks and transactions are verified by pre-approved participants who are required to reveal their true identities. The proof of authority system depends on its participants' reputation and trustworthiness. Some cryptocurrencies utilize a proof of coverage system that requires miners to offer a service, such as hosting a router in their house, so the network may grow. This is one of the requirements for mining these coins.

Moving bitcoin facilities next to oil fields would be another way to reduce the environmental impact of cryptocurrency mining. These operations would collect waste methane gas that is often burned off, pump it to generators, and utilize the electricity from the generators to mine bitcoin. In West Texas, where there is an abundance of wind power, there are plans to mine some bitcoin. Bitcoin mining operations close to wind farms can use the extra energy made by those farms. This is because the amount of power made by the wind can sometimes be more than what the transmission lines can handle.

According to Farrokhnia, even if these concepts are conceivable in a theoretical sense, it's feasible that they won't work in practice. He said that each of these concepts calls for a significant initial capital expenditure. "And we know that interest in mining is predicated on the price of bitcoin itself. As a result, you could have a wide variety of extremely pricey solutions that would aim to be more energy efficient. However, as soon as the price of bitcoin were to drop below a certain threshold, all of these projects would be [cancelled] because they are simply not financially feasible. Given the unpredictability of Bitcoin's price and the lack of clarity around its potential future, who would make those kinds of investments in their right mind?

The development of Farrokhnia is the best chance it has of becoming a more environmentally friendly cryptocurrency. He is of the opinion that cryptocurrencies must take environmental factors into account if they want to achieve widespread acceptance and that more recent cryptocurrencies that minimize their impact on the environment may one day surpass Bitcoin.

According to Farrokhnia, "A new generation of crypto is coming on board." [Cryptocurrency] "They are going to move away from proof of work for a variety of reasons, one of which is the environmental effect, since young programmers are generating the majority of these. This is one of the reasons why they are moving away from proof of work. They are definitely more aware of the environment, and we can only hope that they understand the importance of their work beyond what they are building and that they will take into account how complicated the world is today.

Conclusion

Alternative methods of reducing the environmental impact of cryptocurrency mining include relocating bitcoin mining operations to areas near oil fields and using the waste methane gas from flared flares to power generators. You might have a lot of very expensive solutions that attempt to be more energy efficient, but as soon as the price of bitcoin dropped below a certain level, all these initiatives would be [cancelled] because they are simply not financially possible. He thinks that Bitcoin will be replaced by a newer cryptocurrency that is better for the environment because the industry won't be able to ignore environmental concerns.

FAQ

Is the use of Bitcoin bad for the environment?

According to the findings of the experts, the entire global climate damage caused by bitcoin between the years 2016 and 2021 is anticipated to amount to $12 billion, and within that time period, carbon emissions have climbed 126 times.

In what ways is the mining of bitcoins harmful to the environment?

The digital currency's reliance on a computing process to verify transactions known as "proof-of-work mining" is to blame for the disproportionate amount of damage it causes to the environment. Participating in "proof-of-work mining" requires massive electricity expenditures, and those who do so are rewarded with the opportunity to win some new bitcoin.

Is the use of Bitcoin kind to the environment?

According to environmentalists' assessments, the "mining" of bitcoin requires an alarmingly high quantity of fossil fuels. On the other hand, there are other cryptocurrencies that are better for the environment and do less harm to the world. Because of these, worries about the relationship between cryptocurrencies and the environment might be eased.

Why are NFTs detrimental to the health of the environment?

Indeed, conventional approaches to minting and validating NFTs use significant amounts of energy. The vast majority of non-fungible tokens (NFTs) in existence today are hosted on OpenSea, a platform built on Ethereum that is notorious for its high level of energy consumption. Yes, the environment is being harmed when NFTs are used in these situations.

That's all for today, see ya tomorrow! If you want more, be sure to follow our Twitter (@croxroadnews)

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.

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