“Crypto” - A digital currency with a not-so digital environmental footprint
Lately, as our lives have advanced, thanks to the continuous technological innovations, a lot of our habits have gone digital. Be it ordering food or a cab, making payments and managing our monthly bills. Almost everything is swiftly going digital. Today, almost every local vendor, both big and small, has a QR code for you to scan and make cashless payments. We do not feel the need to keep cash handy anymore. This digital age has certainly made human life easier and also paved the way for new technologies. One such trending digital concept of our times today is Cryptocurrency. Despite being the buzzword lately, still not many truly understand how it works.
What and how does Cryptocurrency work?
Cryptocurrency is nothing but a digital currency that can be used as a medium of exchange?[1]. The phenomenon is rooted in the concept of cryptography, wherein the method of encryption and decryption of data is used to secure the transaction between the sender and the receiver. Contrary to the conventional way, cryptocurrencies have eliminated the presence of the middlemen – the banks. In the absence of an intermediary, the data here is stored with the help of a ‘blockchain’ technology.
"Now, what’s a blockchain?
When a new transaction takes place, the cryptic details are transmitted to a network of computers all around the world, who try to decode the data to verify the exchange taking place. Without the banks to verify the transaction, the highly cryptic codes are decrypted by computers, a.k.a “mining”. Upon verification, the data is then stored in a ‘block’ with definite storage capacities. These blocks store information about the parties involved, the time and place of the transaction, and more. Once a block is filled up with details of several other transactions, the latest data from the previous block connects with the first entry of the next fresh block. The process repeats itself and that is how a?blockchain?comes into play?[2].?
Since there is no middleman involved, there are fewer charges and the time needed to transfer funds is also less. There are no geographical barriers either. This decentralised system of transactions certainly gives cryptocurrencies an edge over other forms of trading?[3].
Bitcoin was the very first cryptocurrency that entered the market back in 2008. It was then followed by other digital currencies such as Ethereum, Dogecoin, XRP, Shiba Inu, etc., giving investors more options to invest in. Cryptocurrencies are becoming more and more popular and are believed to be the future of trading and transactions. However, it has a major environmental drawback that needs to be dealt with first.
Crypto’s not-so digital environmental footprint:
Energy: The computers mining to verify the authenticity of several transactions are extremely energy-intensive. The high-tech computers, in the process of decoding the cryptic details, end up consuming a massive chunk of electricity. Bitcoin alone is claimed to be consuming over 204.50 TWh of energy annually[4]., more than the consumption of Google, Apple, Facebook and Microsoft combined?[5]. This is equivalent to the power consumption of the entire Thailand! In the case of Ethereum, the annual power consumption is estimated to be equivalent to that of the Netherlands?[4]. Moreover, these computers racing to solve the mathematical codes generate a lot of heat and thus, additional energy is consumed just to cool them down?[5].
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E-waste: Other than energy consumption, cryptocurrency mining leads to the generation of tonnes of electronic waste as well. The rigorous computer mining calls for specialised hardware for processing efficiency. As per estimations, such hardware becomes outdated after a year and a half and it cannot be reprogrammed to do anything else either. As a result, e-waste is generated on a large scale. Studies suggest that just one Bitcoin transaction creates roughly 350.90 gms of e-waste, equivalent to the weight of 2.11 iPhone 12 and about 0.72 iPads?[4]. Thus, even if mining is powered by renewable energy, the problem of electronic waste will always persist.
Carbon Footprint: By now it is pretty clear that crypto’s carbon footprint is bound to be as bad as its e-waste and energy consumption dilemma. According to Digiconomist, Bitcoin and Ethereum’s annual carbon footprint is comparable to that of Kuwait (97.14 Mt CO2)?[4]?and Singapore (53.38 Mt CO2)[6], respectively! Estimations also suggest that Bitcoin alone can fuel climate change and push global warming to 2°C if it continues to work in the same way it does at the moment?[7]. This carbon footprint can be largely attributed to the source of energy used by the miners, which is mostly fossil fuels[8]. As a result, the carbon footprint only goes on to add to the problems associated with cryptocurrencies.
So, do we not have any greener options?
The good news is that crypto’s negative impact on the environment is being actively addressed and discussed. Taking this matter forward is the ‘Crypto Climate Accord’, which is collaborating with the blockchain industry to develop #proofofgreen solutions for the crypto community and decarbonise the industry?[9].
Moreover, there are quite a few lesser-known cryptocurrencies in the market with a comparatively lower environmental footprint. Some of these green cryptos include?[10]. (please note that these are for information purposes only and not recommendations):
Algorand?(carbon-neutral since April 2021),?Bitgreen?(offers financial rewards to investors for every ‘green’ activity such as carpooling, volunteering, etc),?Chia?(uses a model that consumes less power and allows the use of hard drives with unused space)?SolarCoin?(is distributed on the installation of solar power plants with an intention to make the renewable energy free),?Cardano?(uses a proof-of-stake model that allows 1000 transactions per second by consuming only 0.5479 kWh of energy; bitcoin will only allow for 5 transactions)[11]., etc.
So far, it is evident that digital currency has a negative impact on the environment, fuelling global warming. However, with a good amount of research, one can find alternative cryptocurrencies that have embedded sustainability in their trading mechanisms. As our world is becoming more and more climate vulnerable, every new innovation has to ensure it is not contributing to the already existing pressure. Choose green and invest better.
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