Bank of America on Thursday declared that according to their research Bitcoin has an immense environmental footprint and if it was to be compared, the Bitcoin industry consumes more energy than Bangladesh and Greece. It further said that the energy consumption of Bitcoin is comparable to that of American Airlines and has a very measly score on ESG. It is said to be the biggest carbon-emitting sector of the world going on a par with huge firms of the world.
But how is the bitcoin industry the biggest carbon-emitting sector of the world? What is the effect of the industry on the environment? Can there be any measures to prevent the impact of the industry on the environment? If you are also curious to know more, continue reading the article as we share with you all the details of the industry.
According to the reports published by the Bank of America, it showed that every $1 billion inflows into the bitcoin industry consume as much energy as 1.2 million cars would. Like for example, if a single Bitcoin is purchased at a price of ~$50,000, then it will have a carbon footprint of 270 tons which is considered to be equivalent to that of 60 ICE cars.
And that Bitcoin’s carbon footprint is directly linked to the price. If the price of the bitcoin goes up, the emissions go up too. Got a little confused. We will help you to sort that out. Let us first retrace back to how the bitcoin industry works.
Bitcoin is a cryptocurrency that was invented in 2008 by a group of unknown people or by an unknown person under the name Satoshi Nakamoto. According to Wikipedia, Bitcoin is defined as a decentralized form of digital cash that eliminates the need for traditional intermediates like the government and banks to make a transaction. To break it down in simple words, the regular money we use is regulated by our government from where it is issued.
But on the other hand, bitcoin is regulated by peer-to-peer technology where the currency is regulated by codes instead of physical items. Each Bitcoin is a computer file stored on a smartphone or a computer. To explain the working of the cryptocurrency, there are some terms that we should be aware of:
For example, U wants to send B bitcoins to V. After U has sent the bitcoins to V, the transaction gets published from the computer to the blockchain but the transaction published is not verified as legit. And here comes the function of bitcoin miners. Bitcoin miners check whether U has sent the same B bitcoins in some other transaction or not and then by solving a complicated hashing problem, they secure the block and completely solidify the transaction.
Hashing is an extremely complex process where it requires all the data stored in a block and by solving a complicated mathematical problem which is also known as the proof-of-work, it generates a 64-digit hexadecimal number or the HASH. This hashing process ensures that there will be no frauds in the future.
The bitcoins are generated at a decreasing rate and mining is an incredibly competitive process. Now coming back to the impact of the bitcoin industry on the environment. As mentioned earlier, as the price of bitcoins goes up, the carbon emissions go up too as the process starts involving more crypto miners.
The bitcoin network becomes complex with each passing day to prevent hacking and to cope with the constant demand of the bitcoins. As a result, more hash power is required which increases energy consumption. The Bank of America has mentioned that the estimated power consumption has grown over 200% in the past two years only.
Another key concern mentioned in the report was that most of hash power comes from China where bitcoin mining is actively encouraged by the government. The electricity costs are very low there but what’s more concerning is the fact that 60% of the electrical generation is from coal-fired power plants. Therefore, it indicated that mining uses unsustainable fossil fuels.
The Bitcoin mining industry is a power-hungry industry and the Bitcoin is designed in such a way that it is bound to consume so much electricity. According to Michel Rauchs who is a researcher at The Cambridge Center for Alternative Finances said there is no other alternative to stop the energy consumption by the bitcoin industry as long as the price of the bitcoin does not go down and with Tesla’s decision to heavily invest in Bitcoin, the problem is not going to get solved in the future.
Using the plan of mining efficient hardware has been rejected as that will also soon be competing against other mining efficient hardware and therefore there can be nothing that can actually prevent Bitcoins energy use and the CO2 production as a result from spiraling upwards. However, there is a global group of hackers known as PIVX, that has actually started working on how the mining processes can be changed. The only way to balance the negative consumption of energy is to introduce a carbon tax on cryptocurrencies.
The carbon emissions caused due to the bitcoin industry are immense and the sooner we can solve the problem, the better it will be for the environment. The governments must take stringent policies against the bitcoin industries so that environmental imprint can be reduced as early as possible.