Can Bitcoin and Cryptocurrencies Help Fight Climate Change?
After being dubbed as a climate warming accelerator, Bitcoin is about to change sides and fight climate change. Is it possible for an industry that spends almost 0.13% of the world’s annual power consumption only on mining Bitcoin to become eco-friendly? And, if so, how will it go about it?
Today, we take a closer look at the challenges that cryptocurrency faces in its bid to become “green.” We delve into alternatives to the energy-devouring mining process and how the recent Bitcoin halving may have changed it.
Is Cryptocurrency Bad for the Environment?
Bitcoin and other cryptocurrencies advocate for a future when financial transactions no longer require a central authority approval. Various banking institutions oppose them for obvious reasons, but they are not the only ones.
A not-so-old report reveals that a future in which Bitcoin is globally implemented as a standard financial protocol may bring exponential damage to the environment. The study predicts that accelerating Bitcoin adoption would increase global warming above 2°C by 2033.
If you think that 2°C more or less on the global thermometer wouldn’t make a difference, you are in for a scorching surprise. The consensus in climate change studies is that a mere increase in temperature by 1.5°C would negatively affect our lives and the environment.
Another report from a team of economic researchers at the University of New Mexico revealed that Bitcoin’s energy costs have an indisputable impact on the environment. Only in 2018, “every $1 of Bitcoin value created was responsible for $0.49 in health and climate damages in the United States.”
These statistics do not go well with climate emergency defenders, so cryptocurrency promoters have a new mission on their hands. They have to prove that instead of being an environmental threat, cryptocurrency can help fight climate change.
How Bitcoin Contributes to Global Warming
One of the most promising aspects of Bitcoin implementation is the proof-of-work algorithm. This mechanism for reaching consensus allows users to mine for new BTC units or similar cryptocurrencies as part of a peer-to-peer network. It makes it easy for everyone involved to verify transfers and makes the entire system virtually impenetrable.
The problem with mining Bitcoin is that it requires a great deal of energy. The early days of cryptocurrency had many miners working for Bitcoin on their ASIC computers. But, the romantic age of crypto mining is long gone.
Nowadays, a small number of “mining pools” dig for most of the newly-created Bitcoins. Most of these facilities are in China and Mongolia, where energy costs are small. There, entire “farms” of mining computers work 24/7 throughout the year to bring more BTC to the surface.
While the Chinese dominance in the mining industry has started decreasing, the miners in China control around 66% of the power of all computers that make up the global Bitcoin network. That power is known as the hashrate, and it dictates a computer’s ability to produce new coins.
The biggest concern is that these Bitcoin-mining farms get their energy from the gigantic coal mining industry in China, spreading its tentacles in Inner Mongolia. Coal is a fossil fuel resource that harms the environment. The air pollutants that it emits have a devastating effect on human health and lifespan expectancy.
Cryptocurrency, and more exactly, Bitcoin mining is highly profitable. However, its carbon footprint weighs heavily on the environment. This report shows that the Bitcoin network’s annual carbon dioxide emissions amount to almost 23 million metric tons, which is the same as Jordan’s state produces in a full year.
5 Ways for Cryptocurrency to Help Fight Climate Change
So far, it may look like Bitcoin is “pure evil” and highly toxic for the environment. The situation is not as bad as it seems if you take a step back and look at the big picture. You may realize that crypto is steadily turning into an ally in the war against climate change.
Effective solutions to making Bitcoin mining and cryptocurrency use in general eco-friendly are on course to full implementation. Here are five good omens that point in that direction!
The Promise of Bitcoin Halvings
Bitcoin mining is a race between miners to solve a highly complex mathematical puzzle. The winner gets a reward for adding a new block to the blockchain and any transaction fees included in individual transactions.
The recent Bitcoin halving has reduced the reward from 12.5 Bitcoins to 6.5 Bitcoins. It is a drastic change, but a cemented part of the schedule established by Bitcoin founder(s) Satoshi Nakamoto almost 12 years ago.
Halving the reward money may deter some miners from continuing their work on the blockchain. A diminishing of miner computers may take off a bit of the strain on the environment as long as the Bitcoin price remains high.
The Lightning Network
If the work put in by the miners does not decrease, then Bitcoin has to look for alternative solutions to its protocol. In this regard, the Lightning Network may be more efficient in reducing the environmental impact.
The Lightning Network enables the practice of on-chain and off-chain transactions at a higher speed and cheaper fees to improve the Bitcoin platform’s overall performance.
Adopting the Proof-of-Stake Algorithm
The Proof-of-Stake (PoS) mechanism is an alternative to the Proof-of-Work algorithm to reach a distributed consensus on the blockchain. It is not necessarily better, but it requires substantially less energy to function.
In PoS, the task of validation a transaction passes from a large group of miners to a restricted number of representative nodes. They certify process transactions without using as much computational work and energy as miners do.
Swapping Fossil Fuel for Green Energy Sources
Putting an immediate stop to Bitcoin mining is almost impossible and entirely unproductive. China tried to ban it but quickly changed its mind and made cryptocurrency adoption a governmental priority.
Instead, a viable solution would be replacing fossil fuels as the main energy source with renewable resources. Hydropower and wind energy could prove much more profitable where the natural landscape conditions allow their use. An interesting example comes from the Blockchain firm Soluna building a 900MW wind farm in Morocco to mine Bitcoin.
Placing a Crypto Value on CO2 Emissions
Last but not least, we should remember that behind Bitcoin and its energy-devouring mining computers are people. Individuals can use cryptocurrency to help reduce the impact that it has on the environment.
The idea comes from Germany’s Free Democratic Party (FDP) that wants to pay anyone who removes CO2 emissions in a new type of cryptocurrency called Arbil.
The politicians’ project is still in the stage of suggestion, and its implementation is yet unclear. Still, a crypto-incentivized fight against climate change sounds achievable, and it is definitely something to look forward to.