t was designed to take the middle man out of digital monetary transfers. It began operating without a central bank or authority government in 2009, regulating itself through a digital ledger known as blockchain which records every transaction ever carried out in the currency. One media outlet said the money was “built on the premise of inefficiency.” However, every time a miner successfully verified a block of transactions, they were rewarded with a few units of bitcoin—each of which is now worth $45,000 dollars.
The bitcoin mining process was designed to reward playing by the rules; however, following bitcoin’s rules provokes a high environmental cost. Verifying the cryptocurrency burns 37 million tons of CO2 each year. Its carbon footprint has been compared to countries like Poland, Argentina, and New Zealand. If bitcoin were a country, it would rank 30th in the world for energy consumption. Making matters worse, the currency has been praised by major stakeholders for its high economic value. Just last month, tech industry giant Tesla invested $1.5 billion in the cryptocurrency, skyrocketing bitcoin’s value to an all-time high. And as many continue to laud the currency’s economic benefits, its environmental effects serve as a devastating lesson on trusting the market to mind climate matters.
Over a decade ago, before it carried adverse environmental implications, bitcoin began as a completely virtual cryptocurrency that miners could earn from the comfort of their own homes with an average laptop. However, bitcoin mining is competitive, with many working to verify blocks in the ledger and only one lucky winner. As more and more transactions were validated, the calculations needed to verify a block became more complicated and the bitcoin reward for solving a block shrunk. While bitcoin mining could be carried out on a household computer ten years ago, today, viable mining operations are conducted in warehouses filled with Application Specific Integrated Circuits (ASIC), or electric circuits designed for mining bitcoins. The majority of costs associated with earning the cryptocurrency comes from the energy it takes to run ASICs—a whopping 60-80% of revenue from bitcoin mining ends up paying for the electricity it takes to run the process.
The energy it takes to mine bitcoin results in the first of its many environmental costs. The high electricity costs incentivize miners to pick locations where energy costs are the cheapest. Bitcoin has encouraged new coal buyers in Australia, where formerly redundant mines have been reopened for power mining. Additionally, according to The Conversation, bitcoin mining has made natural gas more profitable in Siberia and led to the support of oil drilling in Texas. Currently, the majority of bitcoin mining—61%, to be exact—is powered by fossil fuels.
Additionally, though ASICs have become more energy efficient over time, their use results in environmental problems outside of energy use. ASICs can’t be repurposed for general computing when more efficient units come along. To avoid wasting money on energy costs, ASICs have to be replaced every year and updated with the most efficient models. Outdated units currently result in 11,500 tons of hazardous electronic waste each year.
Many justify bitcoin’s high environmental costs with its equally high economic benefits. Fidelity Digital Assets once defended the cryptocurrency’s energy inefficiency by arguing that the process “gets you bitcoin in return.” However, as companies like Tesla and Fidelity continue to praise bitcoin’s growing value, those investing in bitcoin mining should be expected to pay for its environmental consequences. In its current form, bitcoin is producing what is known in economics as externalities, or side effects of commercial activity that are not reflected in the costs of the final products. In the bitcoin market, the excessive amounts of CO2 created by mining serve as externalities that miners are not paying for as part of their business activities. If the bitcoin market is left unfettered, miners will continue chasing the cheapest sources of energy, increasing the use of fossil fuels and thus CO2 production.
However, though the current environmental effects of bitcoin are grim, carbon taxes offer a potential solution. If states implemented taxes and make using cheap energy for bitcoin mining more costly, miners would be incentivized to switch to greener energy sources for their business activities. This taxation could help states strike a balance between economics and ecology, curbing cryptocurrency’s growing environmental devastation as we head into the next decade.
a global affairs media network
As Bitcoin’s Environmental Devastation Grows, Economic Solutions Are Needed
March 11, 2021
I
t was designed to take the middle man out of digital monetary transfers. It began operating without a central bank or authority government in 2009, regulating itself through a digital ledger known as blockchain which records every transaction ever carried out in the currency. One media outlet said the money was “built on the premise of inefficiency.” However, every time a miner successfully verified a block of transactions, they were rewarded with a few units of bitcoin—each of which is now worth $45,000 dollars.
The bitcoin mining process was designed to reward playing by the rules; however, following bitcoin’s rules provokes a high environmental cost. Verifying the cryptocurrency burns 37 million tons of CO2 each year. Its carbon footprint has been compared to countries like Poland, Argentina, and New Zealand. If bitcoin were a country, it would rank 30th in the world for energy consumption. Making matters worse, the currency has been praised by major stakeholders for its high economic value. Just last month, tech industry giant Tesla invested $1.5 billion in the cryptocurrency, skyrocketing bitcoin’s value to an all-time high. And as many continue to laud the currency’s economic benefits, its environmental effects serve as a devastating lesson on trusting the market to mind climate matters.
Over a decade ago, before it carried adverse environmental implications, bitcoin began as a completely virtual cryptocurrency that miners could earn from the comfort of their own homes with an average laptop. However, bitcoin mining is competitive, with many working to verify blocks in the ledger and only one lucky winner. As more and more transactions were validated, the calculations needed to verify a block became more complicated and the bitcoin reward for solving a block shrunk. While bitcoin mining could be carried out on a household computer ten years ago, today, viable mining operations are conducted in warehouses filled with Application Specific Integrated Circuits (ASIC), or electric circuits designed for mining bitcoins. The majority of costs associated with earning the cryptocurrency comes from the energy it takes to run ASICs—a whopping 60-80% of revenue from bitcoin mining ends up paying for the electricity it takes to run the process.
The energy it takes to mine bitcoin results in the first of its many environmental costs. The high electricity costs incentivize miners to pick locations where energy costs are the cheapest. Bitcoin has encouraged new coal buyers in Australia, where formerly redundant mines have been reopened for power mining. Additionally, according to The Conversation, bitcoin mining has made natural gas more profitable in Siberia and led to the support of oil drilling in Texas. Currently, the majority of bitcoin mining—61%, to be exact—is powered by fossil fuels.
Additionally, though ASICs have become more energy efficient over time, their use results in environmental problems outside of energy use. ASICs can’t be repurposed for general computing when more efficient units come along. To avoid wasting money on energy costs, ASICs have to be replaced every year and updated with the most efficient models. Outdated units currently result in 11,500 tons of hazardous electronic waste each year.
Many justify bitcoin’s high environmental costs with its equally high economic benefits. Fidelity Digital Assets once defended the cryptocurrency’s energy inefficiency by arguing that the process “gets you bitcoin in return.” However, as companies like Tesla and Fidelity continue to praise bitcoin’s growing value, those investing in bitcoin mining should be expected to pay for its environmental consequences. In its current form, bitcoin is producing what is known in economics as externalities, or side effects of commercial activity that are not reflected in the costs of the final products. In the bitcoin market, the excessive amounts of CO2 created by mining serve as externalities that miners are not paying for as part of their business activities. If the bitcoin market is left unfettered, miners will continue chasing the cheapest sources of energy, increasing the use of fossil fuels and thus CO2 production.
However, though the current environmental effects of bitcoin are grim, carbon taxes offer a potential solution. If states implemented taxes and make using cheap energy for bitcoin mining more costly, miners would be incentivized to switch to greener energy sources for their business activities. This taxation could help states strike a balance between economics and ecology, curbing cryptocurrency’s growing environmental devastation as we head into the next decade.
