By Kelly Derham, Sylvanian writer
You have probably heard of Bitcoin or Ethereum; you may have even heard stories of people getting rich quickly from these and other types of cryptocurrency. However, you may not have thought of the possible environmental impacts of these digital currencies. This is due to the vast amount of energy that is necessary for mining, which requires solving complex mathematical problems and is accomplished by specialized computer software called Application Specific Integrated Circuits (ASIC). In fact, Bitcoin’s annual energy consumption is comparable to some entire countries, such as Argentina and Ukraine. Bitcoin produces 36.95 megatons of carbon dioxide (CO2) annually (comparable to New Zealand) and it is estimated that in 30 years Bitcoin could alone increase global temperatures 2 degrees Celsius. About 65 percent of cryptocurrency mining occurs in China, where electricity is cheaper. Other countries with major mining operations include the United States, Russia, and Kazakhstan.
It is unclear exactly what sources that energy comes from. A study done by Coinshares, claims that Bitcoin gets 74.1 percent of its energy from renewable sources, however, many people are skeptical of this finding and say it does not match other calculations that have been done. Using renewables for mining can also be complicated. For example, hydropower has become more popular for cryptocurrencies since it is cheap, however, it often has to be backed up by fossil fuels because of large regional and seasonal differences in its availability.
If digital currencies were considered true currencies, companies could be taxed or charged based on their energy consumption. However, whether digital currencies are considered true currencies is a sticky point with lawmakers and regulators. Complicating this further, not all cryptocurrencies are the same or require the same amount of energy. Some digital currencies like SolarCoin may even benefit the environment by rewarding investments in solar energy.
It is also unclear what will happen to digital currencies in the future. Bitcoin, for example, suffered a crash in 2018 but has regained popularity in 2020. This may be due partly to the pandemic, and fears of more traditional assets in such uncertain times. Some experts fear this has created a bubble, and a similar crash to 2018 might be in sight. Additionally, cryptocurrencies have increased in popularity, but they have yet to be adopted by stores for everyday use.
Failing to consider the environmental consequences of this technology and regulate digital currency companies could not only damage the environment but also discourage new digital currencies from taking steps to reduce their energy use and carbon emissions. As digital currencies potentially continue to increase in popularity, their environmental impact should not be overlooked.
This blog was included as part of the Spring 2021 Sylvanian newsletter. Please click here to check out more articles from this edition!