Bitcoin plunged to a record low of $ 28,000 last week from a record high of $ 65,000 in April. The cryptocurrency took a hit after China unplugged the miners, drastically lowering the BTC hash rate. Many cryptosceptics have since raised the still raging questions: How much energy does it take to produce Bitcoin? What are the environmental implications?
Crypto mining seems to be complicated. But this is not the case. Mining Bitcoin requires the use of computers to solve complex mathematical problems. A BTC is created as a result of successfully solving a complex math problem. The purpose of Bitcoin, according to Satoshi Nakamoto’s founding white paper, was to enable instant, borderless transactions without the high fees or currency barriers that exist today.
At first, average computers could solve the algorithms, but as the puzzles got more difficult – a consequence of more mining – they couldn’t keep up. Special computers with enormous processing power are needed and these require a lot of electricity – around 121 terawatts per year, which is the equivalent of Argentina’s annual carbon footprint.
Hence the attack on Bitcoin, NFT and other forms of crypto. How much does a monetary system harm the environment?
While Bitcoin mining does not require the use of pickaxes or other mining equipment, it does not imply that the cryptocurrency is energy efficient. In fact, digital currency consumes a lot of energy.
Bitcoin and NFT both produce massive amounts of carbon emissions. A single bitcoin transaction, for example, has the same carbon impact as 680,000 Visa transactions or 51,210 hours of YouTube frenzy. The average NFT produces around 200 kg of carbon, which is the equivalent of driving 500 miles in a gasoline car. According to the Digiconomist site, a single Ethereum transaction consumes more than 70.32 kWh, enough to power 1 American household for 2.5 days. This equates to a carbon footprint of approximately 34 kg of carbon dioxide (CO2).
According to the Cambridge Center for Alternative Finance (CCAF), Bitcoin currently consumes around 110 terawatt hours per year, or 0.55% of global electricity production, roughly equivalent to the annual energy consumption of small countries. like Malaysia or Sweden.
Between 2018 and 2019, the amount of computing power required to mine bitcoin doubled – but where does this huge amount of electricity come from? You could say that we rely more and more on renewable energy sources; According to research from the University of Cambridge, 76% of miners were using renewable energy in 2020.
As the NFT gold rush increased in the first quarter of 2021, many analysts pointed out that the increased interest in NFTs exacerbated the environmental implications of cryptocurrency mining.
“With the electricity consumption of cryptocurrencies being higher than that of several countries, the rush for NFTs has further increased this problem,” said Devesh Mamtani, NFT expert at Century Financial in the United Arab Emirates. “This is very worrying.”
Bitcoin is no different. Over the past two years, the historic rise in Bitcoin has resulted in an increase in emissions of over 40 million tonnes, the equivalent of 8.9 million cars added to the road, according to a Bank of America report. .
Related article | Tesla interrupts Bitcoin payments for environmental reasons, sending cryptocurrency to session low
Musk and new mining developments
Elon Musk reversed his previous decision to let buyers pay for Tesla cars using Bitcoin. Its reason: the exploitation of digital currency has negative consequences on the environment.
Tesla has said he will not sell his bitcoin. The automaker is sitting on $ 2.5 billion worth of digital coin and Musk has said he intends to resume trading with bitcoin once mining “shifts to more sustainable energy.”
“We are also looking at other cryptocurrencies that use less than 1% of Bitcoin’s energy / transaction,” he said.
The overthrow of Tesla’s CEO, carried out on Twitter, caused the value of Bitcoin to drop sharply, with more than $ 365 billion in market value erased from BTC in 48 hours. Many Bitcoin maximalists have taken Musk’s throat, calling him a hypocrite. A new crypto coin named “FuckElon” has appeared in protest against Musk.
In theory, a greener version of bitcoin is possible. Bitcoin’s code could move to a less energy-consuming consensus process, in which a new piece of the cryptocurrency’s blockchain record follows different rules. Every miner, on the other hand, would have to switch to a new way of working. But the possibility of rapid change is almost impossible. The Bitcoin community is riddled with a lot of disagreements.
However, in El Salvador, President Bukele has turned to volcanic energy mining as the country adopts Bitcoin as the country’s legal tender. This could be a step in the right direction in reducing Bitcoin’s carbon footprint.
The creators of Ethereum also promised to shift their algorithm from a ‘proof of work’ model to a ‘proof of stake’ model to make mining more environmentally friendly. For the Proof of Stake model, miners will be rewarded based on the amount of cryptocurrency they hold, rather than competing to solve complex mathematical calculations. Miners demonstrate that they have an “interest” in keeping the blockchain accurate by storing some of their cryptocurrency on the network, thus preventing computers from solving difficult algorithms. Emissions are reduced by reducing IT work. Switching to “Ethereum 2.0” could reduce the power consumption of NFTs by 99%, as the proof of stake has virtually no emissions.
As crypto adoption continues to grow, the crypto community will need to quickly figure out how to decouple from significant carbon emissions. NFT will have to separate from Ethereum so that digital arts can be sold and distributed without impacting the environment. This is the only way the crypto-futures will produce beneficial returns without harming the environment.
Related article | Crypto Asset Firm One River Files Carbon Neutral Bitcoin ETF
Featured image from UnSplash, charts from TradingView