Bitcoin: Road to a Polluted Future?

Cryptocurrency, more specifically, Bitcoin- a decentralized network of financial transfers- has widely been thought to represent the currency of the future. The volatile currency has seen enormous success and growth, due to its huge market cap estimated at over $1 trillion, and nearly 40 million users.

However, the extremely adverse environmental impact of mining Bitcoin could pose a hurdle to its growth as the future’s dominant currency. This was recently demonstrated by sustainable giant Tesla suspending Bitcoin payments for vehicle purchases due to its accompanying pollution, leading to a large drop in the currency’s value.

Background

Bitcoin is acquired by mining- the process of awarding the currency to computers that solve a complex series of algorithms. As the price of Bitcoin increases, there is more competition in the market, making the algorithms more complex, requiring more advanced computers. Such advanced computers naturally require large amounts of electricity to be powered, with studies finding that Bitcoin’s annual carbon footprint is equivalent to that of Argentina’s.

The finding that a forward-thinking, technological innovation is a major pollutant is deeply problematic as the world is trying to move towards a net-zero future. Critics of Bitcoin view it as a ‘waste’ of resources, that displaces people’s real need for electricity for a speculative currency. However, Forbes author Huang says that calling Bitcoin an environmental ‘waste’ is influenced by the definition of the term waste. He argues that ‘waste’ is defined in a politically charged manner, calling that which is not regulated by the state, a waste. Calling Bitcoin wasteful would thus defeat its purpose of decentralization.

Proponents also argue that much of the energy used to mine Bitcoin comes from renewable sources, ranging between 39% and 74% of the total energy used. This is especially true in Iceland and Norway, where cheap renewable energy has made it popular amongst miners. However, the decentralized nature of the system makes it difficult to track the kinds of energy sources used by miners.

The actual use of renewable energy in mining bitcoin is also questionable, considering the popularity of China as a location for miners, due to its cheap electricity and rich coal resources. This is particularly damaging to the environment, considering China’s existing carbon footprint as a rapidly developing economy, and its goal to reach net-zero by 2060.

What does Tesla’s decision mean for the future of Bitcoin?

Although Tesla has suspended operations in Bitcoin at the moment, they have not sold their shares of the currency, saying that they intend to use it when the currency becomes more sustainable.

Indeed, this appears possible. It has been argued that Bitcoin’s code could switch to a less energy-intensive consensus mechanism, where a new section of the blockchain ledger would follow different rules. It is also argued that increasing bitcoin mining capacity could incentivize the rapid development of renewable energy, which would inevitably making bitcoin sustainable. Other cryptocurrencies such as Ethereum have also been thinking of switching to a ‘proof-of-stake’ mining model, that cuts down computational work and reduces emissions. However, such long-term measures do little to tackle the immediate environmental impact, and also require regulation which defeats the purpose of bitcoin.

A giant such as Tesla moving away from bitcoin may be seen as setting a precedent for other companies to move away from bitcoin. However, Musk has been accused of making such statements to manipulate the changing value of bitcoin, to strengthen his own position. The statement may thus, not have the desired impact, particularly considering the growth of bitcoin, and Tesla’s continued ownership of the currency. However, Tesla’s move has definitely given a renewed impetus to ESG investing, the growth of which may bring many positive changes to the environment.

By Roshni Suresh Babu