Global warming has started a chain reaction on the blue planet. Recently, increased temperature at Antarctica split the largest iceberg from the continent. Ice shelves are also breaking gradually, resulting in rising ocean levels. Human’s unbridled and irresponsible activities are affecting the ecosystem.
In the backdrop of environmental concern, Elon Musk, founder of SpaceX and Tesla, tweeted about huge energy consumption in mining Bitcoin, and the company would refuse to accept payment in cryptocurrency if it is not mined through clean energy. The price of Bitcoin tumbled soon after this.
Crypto exchanges deal in Bitcoin all the time. You can find more information about crypto exchanges here. Musk’s tweet has moved the spotlight on the use of fossil fuel energy by cryptocurrency mining.
What is Cryptocurrency Mining?
It is the process of acquiring new digital currency coins in which computers solve complex mathematical problems and puzzles that require sophisticated and high-end supercomputers. Calculations are solved to acquire a block and verify a transaction. Because of the complexity of the layered mining operation, it consumes a huge amount of energy. A Bitcoin mining software can process a coin in 10 minutes. Miners get the transaction processing fee and one coin of cryptocurrency for one transaction.
Why it is a Threat to the Environment?
Cambridge University studied the pattern of energy consumption by mining cryptocurrency, and according to their analysis, Bitcoin mining consumes more electricity annually than Argentina, which is home to 45 million people.
Bitcoin mining uses 121.36 TWh annually. The currency’s value shot when Tesla owner declared that the company had bought Bitcoins worth $1.5 billion and it will accept it as payment in the future. The prices slumped when Musk tweeted the anti-efficiency of bitcoin mining with a graph from the Cambridge Bitcoin Electricity Consumption Index.
The aforementioned tool was designed by Michel Rauchs, who works as a researcher at the coveted The Cambridge Centre for Alternative Finance. BBC News reported Mr Rauch saying that Bitcoins are designed in a way to consume more energy. The trend is not going to unless its prices and relevance tumble significantly.
A comparative analysis
Statistics mentioned in the comparative study shows that the energy bitcoin miners use annually can be used by kettle owners to make their tea or coffee for 27 years. Bitcoin mining has left Argentina behind in energy consumption and is gradually speeding up on Norway that consumes 122.20 TWh annually. It has already left behind UAE and the Netherlands, both of which use 108.8 TWh and 113.20 TWh annually.
However, it was also mentioned that the power usage by bitcoin mining was equivalent to the electricity consumed by powered but in-active devices of the entire USA.
Anyone else using that much energy?
International Energy Agency verified a report published by Galaxy Digital that annual electricity consumption for the banking sector usurped bitcoin mining consumption by many notches at 263.72 TWh per year, followed by gold mining operations at 240 TWh per year. They are consuming almost twice the amount of energy used by bitcoin.
David Gerard is the author of Attack of the 50 Foot Blockchain. The book gives a deep insight into the history of various cryptocurrencies. The book is an analysis of cryptocurrency trends and news. As per his belief, bitcoin is anti-efficient. It is like fighting a battle that doesn’t end, and no one ever wins it.
Mining bitcoin means improvising with software and hardware to make them more efficient. It is of no actual use because it is going up against another equally efficient software known as rigs. Because of the competition, the puzzle also becomes harder.
It happens because of the decentralised network of bitcoin. Suppose we compare it with centralised payments like Visa that processes in a second and uses 500,000 times less energy. Therefore, its carbon footprint is not going down any time soon.
Mr Gerard pointed out that Tesla got 1.5 billion of subsidy in 2020 from the federal government because he promoted green and clean energy. His investment in bitcoin is deviant from his vision. A reasonable and justifiable way of compensating the environment for the damage bitcoin is doing is by levying a carbon tax. However, there are other remedies too.
Remedies for lesser electricity consumption
- Using renewable energy
- Switching to a proof-of-stake system
- Changing the creation of currencies using the pre-mining method
- Introducing carbon credit
Digiconimist states that electricity adds up to 28% of the cost to the price of a cryptocurrency. Therefore, by switching to greener and renewable sources of energy like Iceland based Genesis Mining, and Hong-Kong based LquidStack, miners can turn that 28% into net profits.