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In February, Tesla announced it had bought $ 1.5 billion worth of Bitcoin and would soon be accepting the cryptocurrency for car purchases. While the move strengthens Elon Musk’s crypto credibility on Twitter, it has a serious impact on the climate. Tesla prides itself on being the green car company that grew even stronger after acquiring SolarCity in 2016. However, according to an analysis by the University of Cambridge, Bitcoin uses around 120 TWh of energy per year, comparable to countries like Norway and Argentina, and is estimated at 184 TWh to be almost the same as in London. That corresponds to more than 90 million tons of CO2 per year. Should progressives think twice about Bitcoin’s greenhouse gas emissions? Will Bitcoin the new coal?
Bitcoin’s energy consumption depends on how secure it is. The currency uses a process called Proof of Work that requires an arsenal of powerful computers to solve a cryptic puzzle every 10 minutes to create a new currency that can be added to the blockchain. It takes thousands of computers – or more efficient GPUs – to make enough guesswork to solve the puzzle and create transactions. This requires an enormous amount of energy, which grows as the price and competition in mining increase.
What’s Next for Cryptocurrency?
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In addition, 65% of the world’s bitcoin mining comes from one country: China. The USA is in second place with 7.2% and Russia with 6.9%. This particularly affects global warming as 58% of China’s electricity comes from coal. Even with cheap, renewable energy, Bitcoin would divert that clean energy away from critical infrastructure and slow down the world’s existential race for carbon neutrality.
To make cryptocurrency transactions greener, policymakers should employ more environmentally friendly crypto technologies such as evidence of stake and federated consensus systems. While evidence of work provides an incentive to the computing power to prevent duplicate coin issuance, these alternative technologies work in a different, but equally effective, way that does not use meaningful amounts of energy. Proof-of-stake systems trust users with a larger percentage of coins who will lose more if the system breaks down. Federated consensus systems work by automatically finding a negotiated agreement that no double spending has been made on coins.
These alternative technologies are faster too. While Bitcoin can create a transaction every 10 minutes – up to an hour until the transaction is fully validated – proof-of-stake currencies can confirm transactions in seconds. Because of this, Algorand started as evidence of its use and Ethereum is proposing a switch to this technology. Ripple’s XRP coin uses a federated consensus system of trusted reviewers that also confirms transactions within seconds and is popular with cross-border payments. And yet, Bitcoin’s continued dominance means crypto is getting dirtier while car companies are getting cleaner. Energy-intensive crypto mining is no different from coal or oil a century ago.
Unfortunately, the governance of Bitcoin is in the hands of powerful miners who have little incentive to switch to more environmentally friendly consensus methods. With Chinese bitcoin miners controlling over 51% of the market, the Chinese government can take a leading role in the climate by forcing their miners to switch to energy-efficient alternatives, thus adapting all bitcoin.
On the ground, our policymakers need to find appropriate ways to discourage crypto energy hogs by taxing transactions in these coins on US exchanges. Signatories to the Paris Climate Agreement must commit to taxing or banning work coins as part of the global review of the 2015 agreement to be held in Glasgow in 2023 at the United Nations Framework Convention on Climate Change Conference. Coinbase’s recent public offering and Binance’s fully isolated U.S. subsidiary have shown that the Securities and Exchange Commission has the necessary funds to regulate American crypto exchanges.
Cryptocurrencies are here to stay as they offer safer, faster and cheaper ways to transfer value. However, people need to understand the huge impact Bitcoin has on pollution and know that cleaner technology already exists. Addressing coins that use excessive energy for mining is the only way to balance cryptocurrencies with real world environmental damage. Just as coal used to be replaced by oil and oil by renewables, leadership requires recognition of innovation in new spaces. As the crypto revolution continues to grow, it’s time to find and promote more energy efficient alternatives. Mr. Musk showed us how to clean up the auto industry. Perhaps it is time he turned his attention to cleaning up crypto.
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial guidelines.
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