China’s crackdown on bitcoin mining and Elon Musk, suspending Tesla’s acceptance of bitcoin due to the large amounts of energy required to mine it, have both helped the cryptocurrency nearly half from its high of over $ 64,000 in April lost their value.
It also makes it hard for bitcoin bulls to ignore bitcoin’s sustainability issues that many say. (Though not all agree.)
So what’s the solution? This is why Bitcoin uses so much energy and there are a few ways that Bitcoin mining could be more environmentally conscious, experts say.
Why Bitcoin Mining Has Sustainability Problems
Bitcoin’s main sustainability problem is the enormous amount of energy it consumes when mining Bitcoin.
Bitcoin mining brings new bitcoins into circulation. Miners verify transactions on Bitcoin’s blockchain to avoid fraud, and as a reward they receive new bitcoins. To verify transactions, miners have to solve extremely complex mathematical problems, essentially through trial and error, which requires complex computer systems and a large amount of computing power. So much computing power consumes a lot of electricity.
“Right now, millions of Bitcoin mining devices around the world are continuously generating 130 trillion such guesses every second of the day. Together, these machines now consume as much electrical energy as a country like the Netherlands, ”says Alex de Vries, a financial economist who heads digiconomist.
And for this reason, the higher the price of Bitcoin goes, the more energy miners need to get Bitcoin.
“That’s why energy consumption usually grows or shrinks as Bitcoin gains or loses value,” says Marc Bevand, a computer security expert who developed the original methodology for the Cambridge Bitcoin Electricity Consumption Index.
These monster computer systems pose a problem as well: “The other half problem is large-scale and frequent machine replacements to support high-intensity mining activities. The production and disposal of these electronic machines is emission-intensive, ”says Dabo Guan, Chair of Climate Change Economics Department of Earth System Science, Tsinghua University, Beijing, China.
The use of renewable energies could reduce greenhouse gas production
The problem with using so much electricity is that the energy produced by burning fossil fuels releases greenhouse gases into the atmosphere, which then cause climate change. Converting Bitcoin mining to the use of renewable energy may not reduce overall energy consumption, but it could reduce the use of fossil fuels.
For example, a research paper published in April by Guan and colleagues showed that the energy consumption of the Bitcoin blockchain in China was expected to generate an amount of greenhouse gas emissions equivalent to the annual production of the Czech Republic or Qatar.
However, it is unclear how much greenhouse gas emissions would be saved if Bitcoin mining were to switch 100% to renewable energy, as no one knows how much mining is already happening with renewable energy sources.
Frequently cited estimates range from 39% to 73% renewable energy. According to Jesse Morris, CEO of the nonprofit Energy Web, most estimates put 20 to 50% of bitcoins powered by renewable energy, but all available numbers are based on self-reported data that is not verifiable.
Bitcoin miners in China, for example, are known to use both fossil fuels and hydropower (the most common renewable energy used by Bitcoin miners). But since the Chinese government began cracking down on Bitcoin mining, many miners have been leaving and moving to Texas along with other potential new homes.
That “could have an even worse impact on the environment if the miners move to Texas,” says Guan. “Texas has the highest proportion of fossil fuel electricity in the US.”
In order for progress to be made, it is first necessary to understand exactly how much electricity is used and what percentage is renewable. Musk said he spoke to a group of miners who had committed to releasing data on their renewable energy use, a development he described as “potentially promising”.
The Crypto Climate Accord, a group working to make the cryptocurrency industry 100% renewable, is developing software that will allow miners to anonymously report the amount and type of electricity they are consuming, says Morris. (Energy Web is a founding member of the agreement.)
Others, like de Vries, are skeptical that Bitcoin miners would voluntarily make their energy consumption transparent. “I do not expect any greater openness from Bitcoin miners, as the number of illegal mining activities is growing rapidly,” he says. “These miners will not reveal anything.”
Still, some, like Bevand, say that Bitcoin will transition to clean energy naturally as it becomes cheaper than electricity, which emits carbon dioxide.
“Sustainability of Bitcoin mining is a problem that will solve itself due to technological trends. …[M]”Inner do everything in their power to find the cheapest electricity, and that often drives them to use renewable energies because they have become the cheapest electricity lately,” says Bevand. “For example, according to the International Energy Agency (IEA), the cost per megawatt for building solar systems is below fossil fuels for the first time in the world.”
But basically, supplying the mining industry with renewable energy is a “short-term solution” of questionable value, says Guan.
If there is limited renewable energy available – say a drought results in limited hydropower – then the question arises as to whether that energy should flow into Bitcoin first. “That stream can usually serve better purposes,” says Guan.
A carbon tax could encourage miners to go green
Since carbon emissions are triggered by mining activities, introducing a carbon tax on miners would be an “effective” way to motivate “greener mining activities,” Guan says.
A CO2 tax might make Bitcoin mining less attractive, says de Vries. And “Bitcoin would become less attractive if it would logically lower the price of Bitcoin. This in turn reduces the amount of money the miners earn and how much they spend on energy-hungry machines (and with it the climate pollution),” he says.
But this solution also has its problems.
First, there should be an independent standard for tracking emissions related to cryptocurrencies, as suggested by a paper published on June 18 entitled “The Real Cost of Digital Currencies: Exploring the Impact Beyond Energy Use.” The paper, authored by de Vries, says the cryptocurrency industry could use an iteration of the Greenhouse Gas Protocol, which is an internationally collaboratively designed accounting standard for tracking greenhouse gas emissions in the public and private sectors.
But even if CO2 emissions are recorded centrally and checked independently, it is difficult to levy a CO2 tax on a decentralized currency. “Mining operations can be relocated relatively easily and miners could simply move to jurisdictions that do not introduce a carbon tax,” said Peter Wall, CEO of Argo Blockchain.
Also, it would be inappropriate to impose a carbon tax on bitcoin before other parts of the economy, says Morris.
“There are dozens, if not hundreds, of industries other than crypto / bitcoin that are responsible for much larger amounts of carbon emissions: oil and gas, transportation, aviation, steel, consumer electronics, and manufacturing … the list goes on,” said Morris.
“Singling out bitcoin and taxing its carbon footprint doesn’t make any logical sense in this regard.”
Change how bitcoin is organized
Bitcoin was developed to work with a so-called “proof-of-work” mechanism, which leads to mining with high energy consumption.
“With proof of work, the system chooses [for a bitcoin reward] the first miner to solve an energy-intensive calculation, “says Bevand. The more work or computing power a miner does, the greater the chance of getting Bitcoin.
However, there is an alternative mechanism called “Proof-of-Stake” that some legacy cryptocurrencies are already using and that Ethereum 2.0 will use as part of an upgrade.
The Proof of Stake organizes the cryptocurrency based on how much of the currency a user owns, not based on which miner solved a problem. In general, if you own 3% of Ethereum 2.0, for example, you can verify 3% of the transactions, says Bevand. There are a few additional factors that need to be considered, such as that users must have a minimum amount, he says.
But there is no calculation with proof of use, so “it doesn’t require any energy,” says Bevand.
If Bitcoin were to move to a proof-of-stake mechanism, “the network’s energy consumption could decrease by 99.95%,” says de Vries.
However, it is not necessarily realistic that such a change will take place.
First, “The plane is in the air, and trying to switch to proof-of-stake would be like trying to switch the plane’s engine in mid-flight,” Wall says.
In addition, many consider the proof-of-work system to be the safest, says Walls. And the amount of centralization required for proof-of-stake (e.g. only for those who have a certain amount of crypto) is a deal breaker for many in the Bitcoin community who are proud of it that Bitcoin is decentralized, says Bevand.
“That’s one of the reasons they’re not very popular: a lot of people don’t trust them,” he says.
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