Cryptocurrency and pollution: what you need to know

Many are claiming that cryptocurrency is the payment method of the future. But should we be concerned about its environmental impacts?

Carbon Footprint 👣

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July 18, 2022

crypto

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Nearly 8% of French people hold cryptocurrencies. First appearing in 2009, this virtual currency is the source of many heated debates regarding its reliability and environmental cost. Because yes. Against all odds, this dematerialized currency does indeed have a negative impact on the climate. 👀

Here at Greenly, we took a look at this popular form of payment. How does it differ from state-owned currencies? How does cryptocurrency contribute to the climate crisis? Is it really an ecological disaster as we are being told? Find out in this article. 👇

💰 Crypto: the money of the future?

What even is crypto? 😅 

They allow transactions to be made in the digital world without the need to use the usual means of payment. As such, it is possible to buy the goods and services of one's choice (cars, apartments or anything you can think of that's payable by card).

👋 Contrary to what one might think, cryptocurrency isn't really money, since it is not legal tender. Their value is determined according to the principle of supply and demand and varies greatly - their highest value recorded was $68,513 (or 59,600 euros), reached on November 9, 2021. Moreover, they are not linked to any financial institution and are not regulated under law.  

In concrete terms, these assets are based on blockchain technology - in other words, a secure database - according to a decentralized registry that records and verifies every transaction. In other words, these alternative currencies are stored on a protected electronic medium - the digital wallet - and can be exchanged.

The different types of cryptocurrency 👀

Given the lack of a legal framework, investing in cryptocurrencies is risky (setting you up for potential financial losses, hacking, or money laundering). Yet, these risks do not prevent the growth of virtual currencies. According to the French government, in 2021, there were no less than 5,023 cryptocurrencies in circulation worldwide. 

Amidst this staggering number of virtual currencies, there are six main crypto-currencies identified, which can be used as means of payment, as well as speculative investments:

  • Bitcoin (BTC), which was the first currency to appear in 2009;
  • Ether (ETH) - or Ethereum - ;
  • Ripple (XRP);
  • Litecoin (LTC);
  • Binance Coin (BNB);
  • Cardano (ADA).

👉 To hold cryptocurrencies, you need to purchase them through intermediaries (exchange platforms, for example). 

🌱 The environmental impact of crypto 

The environmental impact of the crypto manufacturing system is becoming increasingly controversial. Indeed, it is a particularly significant energy sink. In fact, cryptocurrency is considered a major player in global warming. 

An electric-hungry currency... ⚡️

According to the University of Cambridge, the annual power consumption of Bitcoin amounts to 119.22 TwH (terawatt hours). For comparison, gold mining requires 131 TwH. Ouch. 💥

But what is this due to? Simply put, as the economic value of Bitcoin increases, so does the energy consumption associated with its manufacturing.  

This is caused by the mining process, which is essential for generating new Bitcoins. 

Mining is capped at 21 million units and plays on scarcity. Thus, creating additional Bitcoins requires more computing power.

This is because mining is coupled with an extremely energy-intensive process called "Proof of work". In concrete terms, a large number of miners must simultaneously perform a complex calculation to verify, secure and register transactions in the blockchain. This involves testing several combinations until the most suitable one is identified and thus receive a reward (6.25 Bitcoins at the key). 🏆

To perform these operations, therefore, a large number of powerful computer servers are needed... which consume enormous amounts of energy. Concretely, tens of thousands of computers are running continuously. And that's colossal. 😰

… and a major CO2 emitter 💨

In 2021, Bitcoin mining emitted 41 megatons of CO2 into the atmosphere - or 0.08% of the planet's emissions. That seems small compared to other sectors, but the growing interest in cryptocurrencies is raising concerns that emissions will continue to rise. 

Furthermore, a study conducted by Selectra estimates that a single transaction is equivalent to 168.9 tons of CO2. To better visualize the magnitude of this figure, it is equivalent to 90 flights from Paris to New York.

To maximize profits, some mining companies relocate to countries with cheaper electricity. 

In fact, 75% of Bitcoin mining operations were located in China, before the country put an end to virtual currencies in 2021. 

The sudden halt can risk fraud, economic instability and hinder climate goals. 

👉 Today, mining farms have mostly relocated to the United States, but also to Iran and Kazakhstan, which both generate 43% of emissions. 

While this is great for their wallets, it's a lot less great for the planet 🌍 Indeed, electricity production can come from coal-fired power plants, an extremely polluting fossil fuel that emits greenhouse gases (GHGs). 

👀 For example, the four remaining coal-fired power plants in France generate 10 million tons of CO2, or more than a quarter of the greenhouse gas emissions of the electricity sector.

Adding to social concerns 😥

In addition to emitting greenhouse gases, countries that are home to Bitcoin mining farms are regularly plagued by power outages.🔋 As a reminder, in January 2022 in Kazakhstan, the chain of power outages caused numerous riots that resulted in 225 deaths. Iran experienced a similar fate resulting in a three-month ban on mining.

Finally, according to the International Monetary Fund (IMF), cryptocurrencies are a risk to economic stability - especially in emerging countries. The lack of transparency and the anonymity of users encourage illicit transactions. The most egregious example is cited in a United Nations report - North Korea is said to have partially funded its missile program with stolen cryptocurrency. 

An increase in digital pollution 📈

In addition, to cope with increasingly complex calculations, it is necessary to work only with computer chips of the latest generation that are specially built for crypto mining. Known as "Asic", this type of computer equipment is in great demand and is subject to very frequent updates. Thus, its lifespan is estimated at 1.29 years and its power consumption amounts to 28,470 kWh/year if it works continuously. 

The manufacture of all this material requires rare, precious and non-renewable components, whose extraction is very polluting. This process requires a lot of water, fossil fuels and resources from all over the world. 

After use, users simply throw this material in the trash, as there is no system in place yet for its recycling. In terms of discarded components, a single Bitcoin transaction is equivalent to two iPhone 12 Minis.

✍️ Of note: Bitcoin mining is responsible for 30,700 tons of electronic waste per year - most of which is not recyclable.

What do the cryptocurrency's advocates have to say? 👋

In the U.S., more than 20 members of the House of Representatives sent a letter to the Environmental Protection Agency (EPA) administration pointing out the harmful effects of cryptocurrencies on the environment.

In response, 50 staunch Bitcoin mining advocates expanded on their views in a letter dated May 2, 2022, also to the EPA. According to them, miners do not contribute to environmental degradation, since they "simply buy electricity from the grid, just like Microsoft and other data center operators". Moreover, a study by Galaxy Digital claims that Bitcoin mining consumes half as much electricity as gold and banks. Is that a reason to turn a blind eye? 👁

💪 Solutions are beginning to emerge

France is responding 🇫🇷

To reduce the damage caused by cryptocurrencies, the French government is working on a report about this virtual currency, its issues and its current and future environmental impacts. This report will have to be submitted to the Parliament as part of the Law 2021-1485 of November 15, 2021, which provides for the reduction of the environmental footprint of the digital sector in France.

In short, the report will revisit issues such as "the export of fossil fuel consumption and GHG emissions caused by the development of mining companies in third countries".

Responses around the world 🌏

In 2018 and in light of the negative environmental consequences, Plattsburgh, NY is the first US city to ban cryptocurrency mining. In fact, the New York State Assembly passed a bill imposing a two-year moratorium to assess the environmental risks of cryptocurrency mining facilities. A nice step forward! ✨

On March 14, 2022, the European Parliament rejected a ban on pollution-causing virtual currencies, passing Article 61 of the MiCA (Market in Crypto Assets) law. Eventually, a new proposal must be made by January 1, 2025, to regulate the cryptocurrency market. Things are looking up from the perspective of the environment. 

👋 In addition, the European Central Bank (ECB) wants to launch its own virtual currency: the digital euro. This is an additional payment solution, accessible to all, which does not replace state currencies.

The development of green cryptocurrency ❇️

Through innovative technologies, there is potential for making cryptocurrency greener. First, transition to renewable energy is necessary to decrease the impact of cryptocurrencies on the environment. 

To this end, Greenpeace and other NGOs have launched a campaign called "Change the code, not the climate", aiming to abandon the "proof of work", a technology considered "obsolete". They are calling for a switch to a less energy-intensive technology: the "Proof of Stake". With this technology, instead of using several miners to perform the same calculation, this method requires only a few people to validate and secure transactions before adding them to the blockchain. 

👉 In short, the code change would reduce energy consumption by 99.95%. In fact, the second most used cryptocurrency, etherium, is gradually switching to this method - although it's not yet been perfected.

Sure, there's a lot of work to be done, but let's not give up hope! 👋

Currently, the cost of renewable energy is very attractive and works in our favor. In addition, several mining companies are already operating on sustainable energy sources. According to the Bitcoin Mining Council, the share of sustainable energy in mining is almost 56% worldwide. As an example, Coinshare boasts that it uses 73% clean energy for its operations. It is possible to use 100% renewable energy to mine Bitcoin, as Norwegian miners do! 

This is something that could be achieved by 2040! In fact, a foundation named "The Crypto Climate Accord" was created in Zurich in April 2021. Its goal is to make cryptocurrency green by reaching zero carbon in 2040.

🌳 Manage your carbon footprint with Greenly

Although cryptocurrency hasn't gone fully green yet, you can do your part by engaging your company in an ecological approach with Greenly! Contact our experts to get your carbon footprint analysis done, and reduce your greenhouse gas emissions.

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by
Alexis Normand

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