[Feature] Cryptocurrency: the next harbinger of environmental collapse?

In 2019, climate activist Greta Thunberg delivered a powerful speech at the UN- berating world leaders for their inaction on climate change. Her now-legendary words 'How dare you’ went viral over the next few months, catapulting her to international fame.

Yet, carbon emissions throughout the world have not decreased- the world emitted an estimated 37.08 billion metric tons of CO2 in 2019; In 2021, the figure was 37.12 billion metric tons.

And in recent times, environmental groups have started to point the finger at crypto as part of the problem.

Earlier this year, Greenpeace commissioned a piece of art titled ‘Skull of Satoshi’- made of recycled styrofoam and over 300 pieces of electronic waste.

And just this month, the New York Times published an article detailing the extent of Bitcoin mining operations in the US- and said that the pollution that they caused was about the same as adding 3.5 million gas powered cards to America’s roads.

The article received quite the reception from the crypto industry- with many criticising the article as one-sided, or accusing the authors of cherry-picking their data.

Indeed, some of their figures can seem quite incredulous- after all, where is all this electricity going to? Cryptocurrencies do not need to be printed, among other reasons, so how can they be consuming such monumental amounts of electricity?

How much electricity does crypto actually consume, and why?

In 2021, Bitcoin consumed more energy than Norway, Ukraine, and Sweden, and just slightly less than Malaysia.

This would account for around 0.55 per cent of all global energy consumption.

Needless to say, a single currency consuming as much power as 33 million people is quite the achievement. But why?

It has to do with how Bitcoin operates- with its proof of work, which is extremely energy-intensive.

Being a decentralised ledger, cryptocurrencies like Bitcoin need a way to ensure that everyone has the same copy of the ledger. This is done through a consensus mechanism- which is what a proof-of-work is.

How it works is that computers are constantly searching for specific inputs that will satisfy certain conditions when put alongside a list of new transactions. When the input is found, the list is broadcast to everyone, and the search begins anew. To motivate people to search for these inputs, every block has a block reward, in which the person who successfully finds the next block will be given a small amount of Bitcoin.

But it is also this process which causes Bitcoin to consume such massive amounts of electricity.

Not only are miners competing to find a suitable input to complete the block, and therefore using electricity to power their computers, there is also stiff competition, since only the first person to find the input will be granted the block reward. Everyone else’s efforts will be wasted, and work will begin anew on the new block.

This system also means that as Bitcoin becomes more popular, the energy that miners consume increases without implying an accompanying increase in productivity.

The competition associated with mining has also resulted in stiff competition, with miners discarding old GPUs in favour of marginally better ones to increase their chances of finding the new inputs before anyone else, and creating plenty of e-waste in the process.

There is also the problem of forked chains- in which different blocks get broadcasted at the same time, causing separate versions of the blockchain to exist. To resolve the fork, users will have to wait for more blocks to be added to each chain, before trusting the longer one.

But during that time, miners are still working on both chains- even though one will eventually be rejected altogether, representing even more wasted effort and electricity.

Is there a better option?

Of course, proof-of-work offers what is probably the worst example of environmental degradation by blockchain- it represents a significant source of carbon emissions, but it is not representative of all of what blockchain has to offer.

It is the extremely competitive nature of Bitcoin and its proof-of-work consensus mechanism that forces miners to consistently keep up with new technology and generate large amounts of e-waste without necessarily increasing the efficiency of Bitcoin.

In fact, when Bitcoin was in its infancy, the blocksize war was fought between big-blockers and small-blockers on whether block sizes should be increased or maintained. Part of the concern of the small-blockers was that increasing the block size for Bitcoin would drive small miners out of business because of the technical demands of larger blocks.

Yet, despite Bitcoin’s block sizes remaining the same over the years, the technical requirements for profitably mining it have increased dramatically over the years.

These impacts, however, have not gone unnoticed by crypto enthusiasts and developers.

Ripple co-founder Chris Larsen was involved in the ad campaign by Greenpeace that produced the ‘Skull of Satoshi’ artwork.

And one of the reasons why Ethereum switched over to proof-of-stake during the merge was because it was ‘more secure, less energy-intensive, and better for implementing new scaling solutions.

The change itself, known as the Merge, has brought some significant results.

Energy consumption from the Ethereum blockchain dropped 99.9% overnight, and the number of forked blocks also decreased significantly.

Aside from this, crypto companies have also been trying to shift energy consumption from fossil fuels to renewable energy sources- and many Bitcoin mining operations set themselves up in areas with access to these energy sources.

But how much they actually rely on these energy sources is also questionable.

Wind energy is notoriously unreliable, and solar energy cannot be used at night. At the end of the day, these mining operations may still need to rely on fossil fuels or other non-renewable sources of electricity in order to keep them running when renewables cannot meet their needs.

And while some cryptocurrencies like Ethereum have already switched over to the less pollutive proof-of-stake consensus mechanism, around 64% of all the crypto market’s market cap is tied up in proof-of-work blockchains, including Elon Musk’s beloved Dogecoin.

But is crypto inherently bad for the environment?

No matter how much we try to reduce the environmental impact, it is inevitably a cost that must be paid if we are to use cryptocurrencies and other digital tokens. After all, these new technologies still rely on electricity to run, and that electricity must be generated somehow.

And how far we are willing to go in either degrading the environment at the expense of advancing blockchain and crypto, or how much development we are willing to sacrifice in the name of protecting the environment, is really only a matter of what we value. Someone who is unbanked and therefore unable to participate in the economy any other way may find that excessive carbon emissions is besides the point- while residents of low-lying islands threatened by rising sea levels may feel otherwise.

But just because the trade-off exists does not mean that the conflict will always remain intractable- after all, one of the core tenets of Bitcoin’s ethos is decentralisation and democratisation of power. And that means that there is no central authority that can control proof-of-work blockchains.

Instead, if Bitcoin, or any other proof of work blockchain’s users want to change the consensus mechanism to a proof-of-stake, they are entirely within their power to do so.

The Ethereum Merge has shown that it is possible, and that it could drastically reduce the amount of environmental damage that blockchains create.

This event, which barely received sufficient coverage, was a seminal event in cryptocurrency history. It proved that moving from an extremely-pollutive system to one that was far more environmentally friendly was not only possible, but feasible.

And Ethereum’s transition from proof-of-work to proof-of-stake does not have to be the only one.

Bitcoin itself commands almost half of all the market capitalisation of cryptocurrencies- and it runs on the pollutive proof-of-work consensus mechanism. Just imagine how much less energy could be consumed if one of the most popular and competitive blockchains in the world switched over.

Not only would the amount of energy that Bitcoin currently consumes be drastically reduced, but it would put a stop to the intense competition for better hardware to chase better profits.

Of course, individual actions like reducing plastic bag usage, remembering to turn off the lights, and taking public transport where possible are all ways in which we as consumers can reduce our own carbon footprint.

But beyond that, we should also do our best to try and impact carbon emissions from businesses- voting with our dollars and supporting carbon-neutral and environmentally sustainable blockchains.

And for the blockchain enthusiasts among us, it may help if we add our voices to those asking the crypto industry to change their code, instead of changing the climate.