$60,000 to $30,000 - The cause
Global warming, welcome Bitcoin
Before
going deeper into its impact and why it's receiving so much scrutiny,
one must first understand what Bitcoin is all about.
The basic principle or idea behind bitcoin is simple, it’s a digital currency with limited supply. This means that there will only ever be a limited number of bitcoins in circulation. Now some common questions regarding bitcoin are:
What is the total number of bitcoins? 21 million. There are a total of 21 million bitcoins
that can be circulated (or as it is put in the crypto market, mined).
How many
bitcoins are currently being circulated? 18.5 million (18,710,000
approximately). Currently, 18.5 million of the total 21 are being circulated
(in other words bought/sold/held).
And lastly, a question that many do not think about, how many bitcoins have been lost? 2 million (as per estimates). In principle bitcoins are never “lost”. What generally happens is that a miner or a holder of bitcoins puts his bitcoins in a digital “bitcoin wallet” and forgets the key/password to it. Hence locking the bitcoins in it. According to estimates, around 2 million bitcoins have been lost, most of them being locked in a digital wallet. Therefore, saying that bitcoins are lost is erroneous. Instead, one can say that bitcoins are “locked”. In some cases, even the locked ones are retrievable through hacking into the digital wallet, but it is not a certainty. So, the total number of bitcoins that can be mined or retrieved is still at 21 million, or as is believed. One such example of locking bitcoins in a digital wallet:
(Stefan
Thomas, a German entrepreneur had over 7,000 bitcoins in his digital wallet.
This was back in January, hence valuing them at $220 million. He had written
the password on a piece of paper back in 2011 when he received them. He had 10
tries to open his wallet but failed to do so.)
Although bitcoin mining is an extensive topic
and needs to be understood on its own. In layman's language, bitcoin mining is
the process by which new bitcoins are entered into circulation and made
available in the crypto market. The process (mining) by which they are entered
into circulation consumes a copious amount of energy through the use of
prodigious computers and machinery that mine bitcoin. Bitcoin mines that have
been set up are filled with processing units and equipment worth thousands of
dollars. This was, however, not the case.
Bitcoin
mining has been a highly rewarding process. In 2009, just by using your
computer, you could mine 1 block which had 50 bitcoins. Now that bitcoin is
worth $35,000 and is projected to go over $100,000, miners are working
harder than ever to get their hands on bitcoin. Mining 1 bitcoin costs anywhere
from $500 to $50,000 pertaining to the cost of equipment and setup that is
used. Even if it takes, on average, $25,000 to mine bitcoin as of today, it is still a
highly profitable practice with its price around $30,000 and rising.
Figure 1 Source: Investopedia
Mining usually ensues in the form of blocks. For a person to mine bitcoins and receive a block of bitcoins, they must solve a mathematical problem. As more and more people mine bitcoins, the difficulty of the mathematical problem also increases even though the reward (6.25 bitcoins as of 2020) remains the same (for some time). Hence as the mathematical problems become tougher the computers that are used to solve the problems, consume more energy, work longer and hence entail more energy. Moreover, after every 4 years (roughly) the number of bitcoins received as a reward is halved (buybitcoinworldwide.com). In 2009 a single block that was mined contained 50 bitcoins (!) and has gradually declined to 6.25 bitcoins. Since the supply of bitcoin is limited, miners are trying to get their hands on as many bitcoins as quickly as possible. There have been huge mines set up costing up to millions of dollars to speed up the process. All for the race to the next bitcoin.
Bitcoin energy consumption:
Factors such as limited supply, bitcoin halving, and tougher mathematical problems have added up to the enormous energy consumption:
Since 2015,
bitcoin energy consumption has gone almost 100x. This raises 2 prominent
questions against bitcoin. One, is it sustainable enough as a currency?; two,
how long can bitcoin be mined before it causes irreversible impacts on the
environment. Bitcoin as a currency is still a debatable topic and we might get
some idea about it in the next few years, but its impact on the environment is clear
as of today.
Bitcoin's impact:
If the
graphs were not convincing, these numbers and comparisons are surely going to
be. These figures are the reason why bitcoin mining has been the talking point
in the past couple of months. Over the course of one year, Bitcoin mining
leaves a carbon footprint comparable to that of Libya, a country in Northern
Africa. Adding to that, Bitcoin uses electrical energy worth 120 terawatt-hours, comparable to the 16th most densely populated country, the Netherlands. This
is not all, Bitcoin generates electronic waste of 9.86 kilotons, about the same
amount as Luxemburg. When a wealth-creating activity (basically) produces
waste and consumes electric energy comparable to that of countries, it is a cause
for concern.
If its annual impacts were not enough, here is the per-transaction comparison. A single Bitcoin transaction’s carbon footprint is equivalent to the footprint left by watching YouTube for 99,000 hours or 4000 days (no, there is no decimal). One single transaction consumes electrical energy compared to the amount of consumption by an average US household over 43 days. The last nail in the coffin, one Bitcoin transaction produces e-waste equivalent to the weight of 2 golf balls (approximately 200,000 transactions are done per day).
Comparing Bitcoin to countries:
Now that it's evident Bitcoin uses an insane amount of energy, the question must be asked, is it using more energy than certain countries?
Yes, yes, it is. As per the recent BBC data, Bitcoin uses more energy than Argentina. If it were a country, Bitcoin would rank 29th in the list of top 30 energy-consuming countries worldwide. Not only a dent to the environment, but Bitcoin energy usage also poses problems to companies and governments. Companies that are starting to accept bitcoin must stay wary of its impact on the environment and how it affects their goodwill among the public. This is what happened with Tesla where a company (in this case, Tesla) that promotes a “zero-emission future” was promoting a highly energy-consuming asset. This strengthened their financials (Tesla made more profit from Bitcoin than they ever did making and selling cars) but was harming the image of the company. Hence, Tesla had to stop Bitcoin payments. Moreover, governments that are trying to curb their carbon footprints are facing a serious threat from Bitcoin's impact on the environment. Some of the countries have even taken the step against it and banned bitcoin mining.
Countries
are being compared to bitcoin but is it just about the consumption of
electricity? Unfortunately, no, as Bitcoin consumes more and more energy it
uses more amounts of fossil fuels. It is estimated that Bitcoin could alone
produce enough carbon dioxide emissions to push global warming above by 2° C within 2 decades.
It is
evident that bitcoin is in fact consuming more energy than precedented. Since the
total ownership of bitcoin accounts for 1.5% of the world population, it is
still considered a highly untapped market. This can mean only one thing; the
current rise of bitcoin may not be the last. There is still a huge future in
bitcoin, thus leading to a future of high energy consumption. The numbers shown
in the charts may seem too small in a matter of years. But this does
not mean bitcoin should be banned. For the future of bitcoin as a
currency, a solution to the high energy consumption needs to come up, and surprisingly, it might just have.
The Climate Accord. A United Nations-backed private sector-led initiative to decarbonize
the crypto industry in record time. This initiative is brought together by the
crypto and fintech industries to build a sustainable future for global finance
with the UN’s Framework Convention on Climate Change. Based on and inspired by the
Paris Agreement formulated in 2015, the Climate Accord is an initiative by
non-profit organizations to make the crypto industry transition into a 100%
renewable industry by 2025. Organizations such as Switzerland-based Energy Web
and American AIR are actively taking steps to move forward with this project.
If successful it could change the whole outlook of cryptocurrency. Perhaps this
might be the step required for crypto to be accepted as a payment method in our
day-to-day lives and be recognized as a currency.
Conclusion:
With crypto still being a relatively new and uncertain topic, its future is still unsure. Bitcoin along with other cryptocurrencies has seen various highs and lows in the past year or so. Since trading cryptocurrency has been banned in China, bitcoin has lost almost half in valuation and is still trading around its price at the start of 2021 from its all-time high of $64,000. On the other hand, El Salvador became the first country to accept it as a legal tender. Owing to various macro factors, bitcoin is regarded as one of the most volatile of assets and rightly so. Its future is still a mystery to many, and its actual use as a currency or as an asset is still debatable and under scrutiny. But it is no mystery that bitcoin has been the cause of huge amounts of global warming and energy consumption.
There are arguments for and against bitcoin, countries, and individuals are still rocking back and forth on this heavily debated topic.
It is still
unknown whether the Climate Accord will achieve its goal, will Bitcoin be
banned? Will Bitcoin transition into a payment method for goods and services?
The mystery behind bitcoin is what makes it the future.
*the above-mentioned steps and companies are not investment advice*
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