The arrival of cryptocurrency was hailed as a new financial system and disrupting technology that would be free of political and government interests and regulatory constrictions.
The above may be true, but one notable downside of it is the massive amounts of energy used to generate bitcoin and other currencies connected with the system.
This energy is more often than not traced back to fossil fuels, which doesn’t do the technology’s green credentials any good at all.
Also, because cryptocurrency is decentralized, no one can really be held accountable for the environmental damage that is caused as people attempt to generate even more of the currency.
Now, as major banks and financial centres begin to consider whether to offer and trade in crypto currencies for their customers, pressure groups are attempting to leverage the resources of these banks along with this customer support.
Environmental groups such as Greenpeace are also trying to argue that a change in the coding of Bitcoin could help decrease the amount of energy it uses.
It says the coding is open-source, so technically anyone can use it to mine the currency, whether that’s a financial body for business, or a private individual or entity.
Greenpeace has contacted a number of financial groups in an effort to incentivise them to change their practices and mitigate their carbon footprint emissions. Meanwhile, some bitcoin mining companies have brokered deals with renewable energy firms, and use any excess energy from these to power their own mining procedures.
Another problem is that crypto currencies are verified with a PoS (proof of stake) code, which authenticates its validity. This is the process which is also the most energy intensive. Changing the code would reduce the amount of energy needed, but this would require a shift in the bitcoin protocol, which is one of its founding principles – that no body or firm can influence the way it is produced. Bitcoin users could accept this new code, but some could also reject it and continue to mine it in the more energy-intensive style.
Why is cryptocurrency so bad for the environment?
Cryptocurrencies and other proof-of-work (PoW) based currencies, cause environmental damage due to their energy-intensive mining processes. This mining requires significant computational power to solve complex mathematical problems. This demands immense amounts of energy to maintain and cool the specialised hardware called “miners.”
The electricity consumed by mining operations often comes from non-renewable sources with substantial carbon footprints, resulting in increased greenhouse gas emissions and air pollution.
Additionally, the short lifespan of mining hardware leads to considerable electronic waste, as miners frequently replace outdated equipment. The production of this hardware also consumes resources, such as metals and minerals, contributing to environmental degradation.
Not all cryptocurrencies have the same environmental impact. Ethereum for example is transitioning to more energy-efficient ways while others have been designed to be eco-friendly using alternative consensus algorithms or energy-saving techniques.