The crypto collapse is a good thing for the climate
Is crypto’s loss climates gain?
Crypto’s loss, climate’s gain?
The most polluting “proof-of-work” cryptocurrencies, like bitcoin, ethereum, and dogecoin, together use around 300 terawatt-hours (TW/h) ofmainly fossil-fuelled electricityeach year. Bitcoin has an annual carbon footprint of around 114 million tonnes. That’s roughly comparable to 380,000space rocket launches, or the annual carbon footprint of the Czech Republic.
Proof-of-work mining can be thought of as a controlled way of wasting energy. The process involves specialist computers repeatedly taking random shots at guessing a long string of digits. The amount of computing power dedicated to this effort is referred to as the network’s hash rate.
If the hash rate drops for any reason, because of power cuts or price dips, for example, the difficulty of the guessing game is automatically adjusted to ensure the network can find a new winner every ten minutes. Each winner then gets a go at verifying transactions occurring on the network and is awarded 6.25 newly minted bitcoins.
Whether the guessing game is profitable or not depends on how much the mining outfit has paid to set up their computers and for the energy to run them. A 2020 survey indicated that 39% of the electricity powering proof-of-work mining machines isgenerated by renewables, meaning the majority is met with fossil fuels, of which coal isa leading player. The higher the cryptocurrency price, the more cash mining outfits are prepared to waste on this electricity, until the costs of winning outweigh the rewards.
With the bitcoin price falling, the financial incentive to waste energy for mining bitcoin should be lower. In theory, that’s good for the climate. But, surprisingly, the network’s hash rate (and carbon footprint) remains very close to its all-time high, averagingaround 200 quintillion hashes per second. The scale of this continued interest means bitcoin mining at current prices is probably still profitable. But for how long?
Tipping points and death spirals
Bitcoin’s value has temporarily dropped below the estimated cost of productionseveral times beforewithout significant long-term damage to the hash rate. But should the market stagnate for long enough, proof-of-work cryptocurrencies will start to see an increasing number of miners capitulate.
Miners with the highest costs are likely to sell off their bitcoin holdings as profitability drops, creating even more selling pressure in the market. Short-term capitulation among smaller mining outfits with high costs (often using intermittent renewable energy) is normal.
But a domino effect with major mining firms closing down one after another could cause crypto prices, and the network’s carbon emissions, to drop rapidly towards zero. This event is calleda bitcoin death spiralin crypto-speak.
Besides bitcoin mining price predicaments, there are other potential tipping points to consider. Many big investors, especially those who bought in at higher prices, are currently underwater – weighed down with big bags of bitcoin.
El Salvador’s president, Nayib Bukele, hasreportedly just broughthis country’s total reserve of bitcoin up to around 2,300, or about US$72 million at current prices. His country’s crypto losses areadding to fearsof an imminent debt default that would cause significant pain to those who had no say in their leader’s gamble.
Bitcoin ban or boycott
Prominentinvestors may findbitcoin bear markets a bore. Butresearch showsthe environmental losses from high-priced cryptocurrencies are far more disturbing.
The damage caused by bitcoin mining disproportionately affects poor and vulnerable communities, as mining outfits andcrypto developers take advantageof economic instability, weak regulations, and access to cheap energy. Locals wanting to use these resources for productive purposes can bepriced out by bitcoin miners. These communities also tend to face the sharp end of the climate crisis, which crypto mining fuels.
Governments worldwide want to appear keen on cryptocurrencies astools for economic growth. But the crash shows that bitcoin is both useless asa mainstream means of exchangeand as a reliable store of value,bringing most usersfar more pain than profit.
In the aftermath of the 2008-10 global financial crisis, governments promised a crackdown on toxic financial instruments with make-believe valuations. For the global climate and a stable economy, cracking down now on crypto will be aboon for everyone. But if environmental regulation efforts are not globally coordinated or far-reaching enough, crypto’s climate contagionwill continue to grow.
Article byPeter Howson, Senior Lecturer in International Development,Northumbria University, Newcastle
This article is republished fromThe Conversationunder a Creative Commons license. Read theoriginal article.
Story byThe Conversation
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