Crypto Goes Mainstream, But How Will It Affect The Environment?

BOULDER, CO — The carbon footprint of a single bitcoin transaction, which may take several minutes to completeis equivalent to the energy consumption of an average American home over the course of 77 days, according to Digiconomist. That same transaction is equivalent to more than 2.7 million visa card transactions or 200,000 hours of YouTube consumption.

Annually, bitcoin has a carbon footprint equivalent to that of the Czech Republic at 114 megatons and the same energy consumption of 200 terawatt-hours as Thailand, a country of nearly 70 million people.

Despite that, in Colorado, bitcoin and other cryptocurrencies are about to go mainstream. Governor Jared Polis announced on February 25 that the state will be the first in the nation to accept crypto for tax payments, raising the question of what further expansion of crypto could mean for the environment.

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A executive order signed by President Joe Biden on Wednesday calling for a deeper examination of cryptocurrencies also seeks to reduce the environmental impact of cryptocurrencies, further pointing to an even broader future for the technology.

For those who have successfully stayed away from that side of the internet, cryptocurrency is kind of digital money that is signified through a computer code and uses encryption technology to make it secure. Blockchain, a term that cannot be avoided when talking about cryptocurrencies, is a digital ledger that tracks cryptocurrency transactions.

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With the most popular cryptocurrency, bitcoin, “miners” compete every 10 minutes to solve a complex mathematical puzzle for the right to add transaction blocks to the ledger. The fastest puzzle solvers are currently rewarded with 6.25 newly created bitcoins, or about $245,000.

The rise in popularity of cryptocurrencies has led to a visible increase in energy use and fossil fuel consumption, resulting in higher carbon emissions across the country. Mandy DeRoche, an attorney for EarthJustice, told Patch.

“What we’ve been seeing in New York for the last two years is fossil fuel power plants coming back on and they weren’t operating, or only operating on a limited basis,” DeRoche said. “Now, they are operating 24/7.”

According to DeRoche, coal tailings plants have ramped up operations in Pennsylvania and are back online in Montana.

“Those are planet-killing emissions,” DeRoche said. “There are crypto miners that use renewable energy, in part; I don’t know of any that use it completely because solar energy doesn’t work all night. The economic incentive here is to be mining all the time.”

As with homes, cars, and other infrastructure, “there’s still not enough renewable energy in the US.” to sustainably boost cryptocurrency mining operations, DeRoche said. “Also adding another outsized load like proof-of-work cryptocurrency mining will remove all of that.”

Bitcoin and ether, the two largest cryptocurrencies that are collectively responsible for approximately 60 percent of the market capitalization of the sector, operate on proof-of-work algorithms. These models are largely the reason for the significant carbon footprint and energy use of cryptocurrencies.

Cryptocurrency transactions and businesses operate on one of two models: Proof-of-Work or Proof-of-Stake. With Proof of Work, miners compete to solve a mathematical puzzle. Thieves are discouraged from attempting to sabotage or hijack the blockchain because doing so would require spending more time, energy, and money than at least 51 percent of other miners.

Proof of Stake is a newer and more energy efficient algorithm where miners stake digital coins for a chance to verify blockchain transactions. If they do not verify transactions accurately, they lose the coins they have invested.

While critics call Proof of Work outdatedbitcoin enthusiasts say proof of stake is more centralized and less secure.

Jeremy Epstein is one of those critics. He is investor relations officer for Open Forest Protocol, a startup that hopes to use cryptocurrency and blockchain technology to create markets for carbon offsets, register land and afforestation projects on the blockchain for verification and trading.

“No crypto project was built using a proof-of-work model in the last five years. It’s an outdated model,” Epstein told Patch. “Bitcoin being bitcoin, it will probably remain a proof-of-work protocol forever, and bitcoin mining is probably the biggest contributor to crypto-based emissions.”

Epstein said that bitcoin emissions should eventually fall. Ninety percent of bitcoin has already been mined, but since mining gets harder over time, the last bitcoin won’t be mined until around 2140, according to Reuters, though it’s not exactly a straightforward equation to determine when the last bitcoin might be mined. According to Epstein, a future increase in processing power to go into mining and the number of miners could work against the increased complexity of mining over time.

“Bitcoin has a limited number of tokens, we know there are 21 million bitcoins, never, you can never create more,” Epstein said. “And then transactions are still verified through Proof of Work, but I think overall bitcoin emissions should go down.”

Ethereum, the second biggest name in the crypto space, also started with the Proof of Work model. But the company is currently planning a switch to Proof of Stake for his ether token. According to Epstein, the change will significantly mitigate Ethereum’s energy consumption and carbon footprint.

“When you do that, I think the number is that you will reduce your energy use by about 99 percent,” Epstein said. “The date that Ethereum 2.0 is supposed to happen, I think it’s been pushed back several times, it’s no small thing to change a network to a completely new system, but that should probably happen in the next couple of years.

“And when it happens, Ethereum will go from full energy consumption [equivalent to] 800,000 US households to about 427 US households: Reduces your emissions per transaction by 99 percent.”

From an environmental perspective, Epstein said, the biggest negative impact of cryptocurrencies is on proof-of-work protocols. Now, he said, competitors to bitcoin and Ethereum, sometimes referred to as ‘altcoins,’ are “becoming more common and they’re all based on Proof-of-Stake.

“The industry changed very, very quickly. Proof-of-stake just works better. Again, it’s been five years since anyone built anything meaningful on a proof-of-work platform.”

Beyond the potential of a growing lower-impact cryptocurrency market, Epstein believes that “there is a strong possibility that the cryptocurrency industry will support climate solutions that end up achieving hugely beneficial results for the climate, and those beneficial results far outweigh any effects.” negative that cryptocurrencies have”. in the environment over time.

Crypto, Epstein said, has recently brought about 80 percent of the carbon credits in the world to blockchain technology. A carbon credit is essentially a permit that allows its owner to emit a certain amount of greenhouse gas emissions.

“What this does is it removes low quality offsets from the market so that corporate emitters can’t claim net zero by buying the worst quality carbon offsets available; it raises the floor so they have to buy higher priced carbon offsets.” “. price, and that drives corporate entities to cut their emissions deeper before they buy offsets,” Epstein said. “They look deeper at their production and their carbon market. So this is having real-world effects, but I think today we’re at the tip of the iceberg.”

Colorado’s decision to allow crypto tax payments is just another step in further normalizing the technology, which could eventually mean more environmental and tax regulation for cryptocurrencies.

“The acceptance of cryptocurrencies in Colorado is just another small domino in an inevitable wave of cryptocurrencies eating the world,” Epstein said. “If you look at the adoption curves of who’s using crypto now, we’re essentially analogous to the adoption of the Internet in 1998. And you’re following the Internet adoption curve almost verbatim. Think about what the Internet has done for us. This is the new version of the internet, and it should continue to advance to the point where everyone accesses goods and services using blockchain technology, and they may or may not realize it, and that’s what’s really important.”