The public debut of Coinbase, a start-up that allows people to buy and sell cryptocurrencies like Bitcoin, is a turning point for digital money.
It also threatens to lock in a technology with an astounding environmental footprint.
Cryptocurrencies use blockchain technology, which relies on specialized computers to solve complex equations, so trillions of attempts take a second to verify transactions. It is this practice, called “cryptomining”, that makes currencies so energy-intensive.
Cambridge University researchers estimate that mining Bitcoin, the most popular blockchain-based currency, uses more electricity than entire countries like Argentina.
“All of this makes up so little of the total transactions in the world, but it has the carbon footprint of entire countries. Imagine it takes off – it will ruin the planet, ”said Camilo Mora, climatologist at the University of Hawaii at Manoa.
Dr. Mora argued in a controversial 2018 paper that bitcoin emissions alone could bring global warming above the Paris Agreement target of 2 ° C, a level beyond which scientists are warning the world that climate change will have increasingly catastrophic effects . (Some of the paper’s assumptions have since been labeled implausible.)
Nevertheless, the high environmental impact of cryptocurrencies is beginning to put a strain on climate policy.
In a new article published this month, researchers warned that Bitcoin mining in China – where an estimated two-thirds of global blockchain mining occurs – could make it difficult for the world’s largest polluter to meet its climate goals if it doesn’t is checked.
China’s Inner Mongolia Region recently said it wanted to ban the practice because it would hamper the province’s efforts to meet the new CO2 emissions targets set by the national government. Iran has also cracked down on bitcoin mining, calling it a strain on its electricity grid after power outages struck Tehran and other major cities earlier this year.
The handshake of cryptomining has even reached the art world, where some artists have represented NFTs – digital works of art that are tagged with a unique string of codes and stored blockchains – because of their oversized environmental footprint.
On Wednesday, the shares of Coinbase, the first major cryptocurrency company to list its shares on a US stock exchange, rose instantly, pushing its valuation to nearly $ 100 billion, which was welcomed by investors as a milestone in growth for digital currencies.
Coinbase calls the idea that Bitcoin is bad for the environment a “myth” on its website. It points to research by the financial industry that describes the energy consumption of the digital currency as trivial compared to traditional banking. Although their use is growing rapidly, cryptocurrencies still make up only a fraction of global transactions.
Alex de Vries, who tracks usage on the Digiconomist website, estimates that each Bitcoin transaction uses tens of thousands of times more power than, say, any Visa credit card transaction.
The high energy consumption of Bitcoin Mining is largely based on the so-called “Proof of Work” – a calculation method that was intentionally inefficiently developed in order to keep currencies transparent and decentralized.
Proof of work forces miners to compete in an intense trial and error race to solve cryptographic puzzles. Together, your computers make more than 160 trillion attempts per second to produce a new block. This competition ensures that an immense number of computers are running at top speed around the clock and around the world.
“The proof of work mechanism is not intuitive,” said Susanne Köhler, a researcher at Aalborg University in Denmark who carried out a life cycle analysis of blockchain technology. “As the machines become more efficient, the network does not reduce energy consumption,” as more and more miners have to compete with each other and make more and more guesswork.
Efforts are being made to make blockchain technologies more environmentally friendly – and to use them in climate policy. For example, the nonprofit group Blockchain for Climate has pioneered ways to use blockchain for carbon trading – in other words, systems that allow one country or company to pay and borrow to reduce carbon emissions in another country or company.
And then there is a transition to a “proof-of-stake” method where miners are not forced to compete for adding blocks to the blockchain, but rather miners hand out new blocks based on the amount of cryptocurrency they have already own. The world’s second largest cryptocurrency by market capitalization, Ethererum, has announced that it is nearing proof of stake (this switch is expected to take up to another year), and Bitcoin is expected to follow suit at some point.
“That cuts your emissions to next to nothing,” said Joseph Pallant, Blockchain for the founder and CEO of Climate. Cryptocurrency platforms such as Tezos or Near Protocol already use proof of use and have significantly reduced their energy consumption. And for individual Bitcoin users, reducing your impact by offsetting carbon is another way forward, he said.
“Instead of just saying, ‘Ah, I’m going to back off and not touch it,” I would say, dive in and then find out what you need to do for your conscience, “said Mr. Pallant.