You’re a 21-year-old college student looking to make some extra money to pay off your expensive student loans. You hear about Bitcoin, trading at $10,000 per coin, and boldly decide to invest $2k from your last summer job. A few months pass, and the popular cryptocurrency is now trading at $60,000. You’ve turned your investment into $12k! On a small scale, you’ve realized the American dream, capitalizing on an opportunity to achieve prosperity for yourself and your family.
Cryptocurrency has skyrocketed in popularity and value this last year. Top NFL draft pick Trevor Lawrence placed his entire $24 million signing bonus into Bitcoin last month. Tesla and the city of Miami have both accepted Bitcoin as a form of payment to their employees. Many non-fungible tokens, unique digital assets that people can own using the blockchain technology that powers cryptocurrency, have been sold for hundreds of thousands of dollars worth of Ethereum.
That said, many ignore the sobering environmental consequences of crypto or at least fail to consider how we can harness its power more safely.
It’s no secret that climate change is a pressing issue, and it only continues to increase. 2020 was the second-hottest year the U.S. has had on record (behind 2016), and the current rate of global warming of 0.2 degrees Celsius per decade would lead to temperatures increasing by 2 degrees Celsius in the next 100 years. Rapid industrialization has accelerated global warming, and cryptocurrency is one emerging culprit.
The processes of mining for crypto and managing the infrastructure to uphold transactions take up significant energy:
Bitcoin used more energy in 2020 than a whopping 159 countries (more than 80 percent of all countries), including Sweden, Argentina, Ireland, and almost all of Africa. Mining even one Bitcoin uses 72 terawatts (or 72 trillion watts).
Bitcoin has 21 million total tokens, and individuals or groups can mine for these tokens, similar to how eager Californians used to mine for gold in the 1800s. Bitcoin uses a proof-of-work model, which means miners use immense computing power to solve complex math problems. Miners must purchase “expensive, specialized computers” and compete to achieve a satisfactory solution, explaining the vast environmental footprint. Currently, about 17 million Bitcoin have been awarded, meaning there is still plenty of energy to be consumed by these miners as they fight over the precious final 4 million coins.
We know Bitcoin is bad for the environment, but who is responsible for remedying this problem? Unlike large corporations (who face pressure themselves to reduce their carbon footprint), the actors in cryptocurrency are the people. Miners and crypto owners are responsible for how Bitcoin impacts the environment, and it will take a collective effort and an imminent threat to ignite change.
In class, we discussed a climate change game where every player gets 4 points, choosing how many to keep and how many to delegate to a common pool. The players must combine to delegate eight total points to the shared pool; otherwise, no one gets to keep any individual points. We can think of Bitcoin miners as the players in this game; everyone wants to use significant energy to power their mining efforts, but at a certain point, the environmental damage becomes so great that the individual benefits are worthless. For humanity’s well-being, Bitcoin miners must act to benefit the common pool by lowering energy consumption.
It may take a more environmentally-friendly currency alternative or a coordinated effort to shift toward a more environmentally-friendly mining process.
Bitcoin’s proof-of-work model has its benefits, but Ethereum and many other cryptocurrencies offer an alternative: the proof-of-stake model. Crypto energy costs are almost entirely due to mining. The proof of stake model does not require miners to solve highly complex problems to earn a Bitcoin. Instead, miners “stake” a certain amount, and the system chooses a winner randomly. This promotes equity, sustainability, and adoption; paying less for electricity enables increased growth!
Ethereum recently switched from proof-of-work to proof-of-stake, which is expected to lower the currency’s power consumption by a whopping 99.95 percent. Flow, the currency the NBA uses, also uses proof-of-stake. If Bitcoin were to make this transition as well, cryptocurrency might have a sustainable future.
Cryptocurrency has established a role in modern society and continues to gain momentum as tangible blockchain applications like NFTs emerge. The blockchain represents the first opportunity for users to securely own a digital asset the same way they can hold a physical object like a trading card or painting. The NBA, for instance, is exploring opportunities to utilize this technological breakthrough to its advantage. Worldwide, the potential benefits are endless, ranging from digital IDs to digital voting possibilities to digital medical records.
The technology powering cryptocurrency has the opportunity to benefit our society if we harness its power effectively. This may mean switching from the proof-of-work model to the proof-of-stake model or switching to entirely renewable energy sources and developing better technologies in that regard. Cryptocurrency’s decentralization means that we, the people, are in charge of making the most out of this technological opportunity in a safe manner. Only time will tell if we can handle the problem effectively.