Cryptocurrencies: The Future of Money or Environmental Threat?
On May 12, 2021, Elon Musk tweeted that “Tesla has suspended vehicle purchases using Bitcoin [over concerns of] increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel (…).” (1) This tweet came as a huge shock, considering that the company had been accepting Bitcoin as method of payment for a few months. The hope of mainstream adoption of cryptocurrencies was suddenly crushed—at least temporarily. Given that Bitcoin is a completely digital currency, how come its energy usage is a concern to Tesla? To answer this question, we need to understand exactly how cryptocurrencies work.
Bitcoin is one of many cryptocurrencies, which are digital currencies in which transactions are verified and records maintained by a decentralized system using cryptography (2). Unlike flat money, cryptocurrencies are not issued, nor managed by a central authority (i.e., government, banks). This means that the process of confirming, verifying, and control the flow of currency is performed by computers within the network (3). Also known as mining, this process involves solving complex math problems that can be taxing to even powerful computers. Individuals within the network dedicate their computing resources for these computations and are rewarded with new coins. As the complexity of these computations increases over time, miners are investing in more powerful setups and mining farms to reap a lucrative reward.
While power consumption is not a concern for an average consumer computer, it is noticeable for one solely dedicated to mine cryptocurrencies. Performing complex computational tasks in fact requires a lot of energy. For perspective, it takes 1,544 kWh to complete the transaction of Bitcoin, the equivalent of approximately 53 days of power for the average US household (4). According to CBECI (5), the annual consumption of Bitcoin is around 114.15 TWh, which places the cryptocurrency in the top 35 of countries for energy use. These numbers reveal how problematic Bitcoin and other cryptocurrencies are to the environment.
Given the energy use of cryptocurrencies and Bitcoin in particular, should we abandon this concept or seek to make them more eco-friendly? Next time, we will investigate the possible solutions to reduce their carbon footprint.
Written by Kelly Jean, Class of 2022