Are Cryptocurrencies Green?

Bitcoin mining, fossil fuels, and how can this be solved

In this era, digital gold is born among innovative technologies that are bound to revolutionize every aspect of our society. From the core of our economic system to the environment, cryptocurrencies have been on the headlines since 2009, the year it was created.

It goes by many names — Bitcoin, Etherum, DodgeCoin, etc. — but one thing is for certain: cryptocurrencies are about to change how trust, transparency, and inclusion have been practiced across the globe.

With the current climate breakdown, political discrepancies, inflation, and a health crisis, we need to ask ourselves:

How would a world with crypto look like? Would it bring us the answer to our problems, or arise new ones?

Cheap Energy = More Energy

A cryptocurrency is a form of digital currency that uses cryptography to secure transactions, making it impossible to imitate and double-spend.

It is based on a decentralized network that is distributed across a large number of computers where every trade is recorded publicly, this online ledger is called blockchain — the technology that enables the existence of cryptocurrencies.

To obtain cryptocurrencies, the most common method is the “Proof-of-work (PoW) model” where hundreds of specialized computers run by miners have to solve complex math problems. As you can see, what makes Bitcoin and other forms of cryptocurrencies so special are that they are finite and in order to acquire them an intensive amount of energy is needed.

Here’s where all the fuss about crypto revolves around.

Fossil Fuels, Tesla, and Paraguay

It is estimated that about 106 million people have used bitcoin at least once, which is merely 1,3% of the global population. Even though the number of ‘active’ users is much lower, until November 2021, bitcoin is using more energy than the country of Thailand (190 TWh) — not to mention that the source of energy is mainly from fossil fuels. And this is just for bitcoin!

Cheap energy = More energy

Moreover, only 39% of proof-of-work mining is powered by renewable energy sources, predominantly hydroelectric energy.

Considering the small number of people globally who use these forms of cryptocurrencies and the huge impact it has on our planet, is it reasonable to add more greenhouse gas (GHG) emissions at a time where we should be doing the exact opposite?

The environmental events in the last years have turned the spotlight on the carbon footprint of cryptocurrencies.

In May this year, Elon Musk said that Tesla would no longer accept bitcoin due to the environmental concerns of cryptocurrencies, and his company mission “to accelerate the world’s transition to sustainable energy”. This was after having announced in February that it had bought $1.5 billion in bitcoin.

Of course, this had a negative impact on the value of bitcoin because “after hitting a high of $64,829 in April, bitcoin crashed to $30,000 in May”. Just an example of how volatile cryptocurrencies can be as it is a relatively young technology compared to other forms of currency.

Nevertheless, it also has triggered the race to make cryptocurrency more sustainable.

For instance, Paraguay has more energy than it can use. The country produces 60,000 GWh per year and nearly all come from hydroelectric energy — which is why it is the country with the highest per capita percentage of renewable energy worldwide. Therefore, it will have a lower carbon footprint and, due to the bill passed days ago, take advantage of the energy surplus of the region that will have cascading effects.

Even though it will take a few years for this digital currency to evolve and respond to our environmental needs, what can be done for cryptocurrencies to switch from fossil fuel to renewable energy in cryptocurrencies?

Is There Hope for Cryptocurrencies?

Cryptocurrencies, especially the ones that use Proof-of-work, pose an obstacle for reaching the global commitments made to mitigate carbon emissions.

This is the reason why China has banned bitcoin mining across the country as it jeopardizes its climate goals and financial system that aims to eliminate competition against the digital yuan.

However, those restrictions are not necessary — but neither is to sit back and do anything about the problems that the global adoption of cryptocurrency will unleash.

Due to environmental concerns, a paper published in November this year has brought important insights on how to make cryptocurrencies more environmentally friendly in the next decades. The four solutions mentioned were the following:

1. Encouraging voluntary commitments from the private sector to exclusively use renewable energy for crypto mining.

2. Promoting carbon offsetting for miners and users of Proof-of-work cryptocurrencies such as Bitcoin.

3. Using current financial regulations and taxing to stimulate a reduction in energy consumption by crypto miners.

4. Finally, imposing bans on Proof-of-work mining at a national and international level.

In conclusion, the transition of cryptocurrencies from digital gold powered by fossil fuels to that obtained through the use of renewable energy must happen quickly if it is to be a viable and feasible tool that will continue to revolutionize our economic system as we know it.

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