Latest posts by Nupur Gill (see all)
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There has been a steady watch over the Bitcoin, which currently is coinciding with the swinging world markets. The Bitcoin, the most easily recognised cryptocurrency, also the first to be launched in 2009, influences both financial and, albeit indirectly, environmental value. Before delving into the correlation between these, let us take a snapshot of what it actually is.
What are Cryptocurrencies?
Cryptocurrencies are digital currencies that deploy cryptography to secure them in their transactions as well as control their creation. Cryptography? The conversion of information into code that cannot be cracked. The key allure to these has been their lack of regulation by any governance framework globally, giving them the freedom from a single-entity influence, alongside the ability to trade in them anonymously or rather pseudonymously.
Despite their security feature, there have been several hacks on mining services and exchanges, with total theft to the tune of US$ 1.5 billion in Bitcoin and Ethereum, the two key rival currencies. The anonymous and unregulated nature has also permitted the occurrence of fraud such as tax evasions and money laundering.
The positive side has been that all its transactional history has been maintained on its public blockchain ledger, the process of which is known as mining. Mining also encompasses the confirmation of transactions and is open source. However, it is set up such that a single person cannot easily change or add a block of transactions per whim. Once a block is generated, it gets added to the ledger and the transactions are recorded permanently. This yield adds a minimal transaction fee to the miner’s e-wallet and also creates new coins. It is this that adds value to the currency.
The performance of the Bitcoin
The Bitcoin’s value fluctuates depending on the market forces of its demand and supply. This past year has been tumultuous with a rapid rise and fall of the currency. The last few weeks has seen its value plunge below US$ 6,000, which is the lowest since November 2017 when it peaked at US$ 19,000. The decline in value appears to stem from shaken confidence post tightening of legislations across numerous countries. Nonetheless, it is far beyond its $1,000 value, which it breached over the new year in 2017.
Leaving the reason for volatility and the performance trajectory aside, the changing value of the Bitcoin arises from and causes increased transactional flow. To most, this event is purely financial and operational in nature. However, the operational aspect has impacts of environmental nature that have gained attention in recent weeks and deserve mention.
While the influence of a Bitcoin on financial value can be positive or negative depending on which way its market is swinging, there is predominantly one form of environmental value it generates: negative.
Different numbers and statistics have been put out at different times, but broadly the energy consumption is deemed to be unfathomably high. There is no certain way of verifying the exact energy consumption of the Bitcoin network, and the numbers published so far have their limitations, having left out parameters such as additional cooling required at larger scale operations or older machines. Which, it may be assumed would only increase the figures vs. lowering them.
According to the Guardian’s sources, when the Bitcoin breached $9000, the energy consumption by its ‘mining’ network in a year outdid that of the entire country of Ireland. That is, it used up more than what its 2016 population, according to World Bank, of 4.7 million people did! And as Big Think puts it, as a country, if the Bitcoin were one, it would be 61st in the world rankings of energy consumption.
Additionally, despite the flaws in calculating and comparing Bitcoin’s numbers, the adjusted outcomes are still staggering, and cause for worry. Digiconomist points out that when compared to VISA transactions, Bitcoin uses close to 64,000 times more energy per unique transaction when the numbers are taken from the Bitcoin Energy Consumption Index.
Much of the energy to power Bitcoin transactions comes from grids that are coal-supplied, yielding emissions of 1 kgCO2e per kilowatt hour (kWh) as per Digiconomist. It reports that each Bitcoin transaction soaks up 275 kWh of electricity, with the estimated annual energy use at 29.05 TWh; which is 0.13% of the entire world’s energy consumption annually, beating 159 of the world’s countries. While 0.13% may sound quite insignificant, which it may be at present, and even if the current boom is interrupted by a bust, as the Bitcoin has seen thrice historically, some current predictions have set it on a trajectory of equalling the world’s energy consumption by 2020.
Critics have called for comparisons to the carbon footprint of the global banking system and of factoring in energy drawn from renewable sources instead. There are flaws in these theories too. The banking system is a monolith, conducting more than 3,400 times the number of daily transactions than that of the Bitcoin. Moreover, it has much more infrastructure in place, the carbon emissions of which also are factored in over the life cycle of each element. And as far as drawing energy from renewables is concerned, yes it will be much better than doing so from coal. But the carbon footprint across the renewable grid’s life cycle will mean that there will never be a null in carbon.
Regardless, it is vital to address that even with things being better with renewables, the exponentially high-energy consumption is not only undesirable, but also not justifiable or sustainable. In a world where that energy is dear owing to the current dependency on fossil fuels and to also the fact that there are still people across the planet living in darkness or with limited energy access. Lets consume wisely. Lets invest wisely.
Sydney Morning Herald