The relationship between technology and the environment is complex, but many factors have proven the two correlate. From cryptocurrencies to emails, everything you do on the internet has a significant impact on whether you realize it. In this article, I’ll be talking more specifically about Bitcoin and how it affects the environment. So what exactly is Bitcoin, you may be wondering?
Bitcoin is a cryptocurrency that has become very popular over the last few years, similar to other cryptos like Ethereum and Litecoin. This rise in popularity has also had quite a few adverse impacts on the environment. To understand this complex topic, we have to understand the basics, like how is Bitcoin created?
Similar to some forms of digital currency, Bitcoin is generated through “Bitcoin mining.”
What is Bitcoin Mining?
Bitcoin operates on a Proof of Work system (PoW), which means it requires “miners” to compute the correct random numbers that solve the equations to mine new coins that the blockchain system has generated. Blockchains store data in blocks that are then linked together via cryptography (which is essential for the security of the blockchain ledger), forming a chain of data known as the blockchain. One can store different types of information on a blockchain, but the most common one has been as a ledger for transactions (in this case, Bitcoin transactions). Since “miners” are doing calculations and competing for the answer, the system is called Proof of Work since you have to solve to get the reward. There are other alternatives to PoW systems, which will also be mentioned later on in this article.
Since Bitcoin operates on a PoW system, bitcoin miners are constantly competing to be the first to solve these equations to get the monetary reward. The miner with the most processing power has the best chance to win because they can compute the most answers with a limited amount of time. Furthermore, it enables the miners to organize mining rigs/pools that allow them to solve equations faster, by grouping together with other miners. Since the amount of energy used depends on the size of the mining rig, ever-increasing amounts of energy are needed to mine new coins.
It has become increasingly difficult to mine more Bitcoins since it has a maximum limit of 21 million units. As more units become “mined,” the less there will be available to mine resulting in higher computation power required to mine the remaining units. As of March 2022, there were just under 19 million bitcoins in circulation out of 21 million.
What is the Environmental Impact?
The environmental concern isn’t just from the mining portion alone (which already takes up a significant amount of energy anyways). It is estimated that each Bitcoin transaction uses around 2100 kilowatt-hours (kWh), which is roughly what an average US household consumes in 75 days. This high energy consumption is especially detrimental to the environment if the primary energy resources come from non-renewable sources such as fossil fuels. Bitcoin’s annual carbon footprint is comparable to the release of 97.2 megatonnes of carbon dioxide – roughly the annual emissions of the whole country of Argentina.
As mentioned before an alternative to the PoW system is a Proof of Stake System (PoS). In this system, you would have to put in a deposit or a “stake”, and usually, the validator (not miner) with a higher “stake” has a higher chance of being chosen to mint/forge (not mine) the next block. The validator basically makes sure the transaction of a block is legitimate and valid before it is added to the blockchain of a recipient. As a reward, they receive the fees that are associated with each transaction. If a validator validates a fraudulent block (marks it as “valid” when it isn’t), this is where the stake comes in. As a consequence, they could potentially lose a portion of their stake. Since this is a randomized selection process it is decentralized and uses less energy than the PoW system. And some cryptocurrencies are going this route now, including Ethereum 2.0.
Although we still have a long way to go in terms of making the switch from fossil fuels to non-renewable energy, in the meanwhile we can start using cryptocurrencies that have a lower energy consumption rate. Some of these sustainable alternatives include; Nano, Hedera, and Algorand just to name a few.
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