Investors around the world are rushing to follow the newest financial trend of Bitcoin which is currently worth around $1 trillion.
But the carbon footprint that the cryptocurrency is leaving behind has raised concerns.
How do Bitcoins work?
Bitcoins are created by “mining” coins.
For this purpose, high-tech computers are used for long hours to do complex calculations.
The more coins there are in the market, the longer it takes to “mine” a new one.
As mining provides a solid source of revenue, people are willing to run power-hungry machines for hours to get a piece.
In the process, more electricity is consumed.
What is the level of electricity consumption?
Bitcoin uses more electricity per transaction than any other method known to mankind.
In 2017, the Bitcoin network consumed 30 terawatt hours (TWh) of electricity a year.
However, the network currently uses more than twice as much energy: between 78TWh and 101TWh.
Carbon footprint- Each bitcoin transaction roughly requires an average 300kg of carbon dioxide.
This is equivalent to the carbon footprint produced by 750,000 credit cards swiped.
A recent study has shown that Bitcoins leave behind a carbon footprint of 38.10 Mt a year.
The annual carbon footprint of Bitcoins is thus almost equivalent to that of Mumbai.
To put it in a global perspective, it is as high as the carbon footprint of Slovakia.
Roughly 60% of the costs of bitcoin mining is the price of the electricity used.
What are the other impacts of Bitcoin mining?
With miners using high-tech computers for hours to formulate new blockchains, these machines do not last long.
Manufacturers of Bitcoin mining devices need a substantial number of chips to produce these machines.
Recently, during the Covid-19 crisis, the world had witnessed a shortage of these chips.
This shortage, now, in turn started affecting the production of electric vehicles around the world.
To produce 1 million such computers, the largest provider, Bitmain, would have to use a month’s capacity of one of only two chip fabricators in the world capable of producing such high-power silicon.
This potentially crowds out demand from other sectors such as Artificial Intelligence, transportation and home electronics.
Besides this, countries like Iran are using cryptocurrency to circumvent economic sanctions (imposed to prevent developing nuclear capabilities).
Cheap energy has lured in many cryptocurrency miners.
The mining activity in Iran now represents 8% of the total computational power in Bitcoin’s network.
The country is thus using Bitcoin to boost revenues while its oil exports suffer from international sanctions.
The effects of cryptocurrency mining thus often spill over to other parts of the economy too.
What can possibly be done to control the carbon footprint?
The major problem with mining Bitcoin is not its massive energy-consumption nature.
It is rather the fact that most of the mining facilities are located in regions that rely heavily on coal-based power.
Given the growing implications of the cryptocurrency mining industry, policymakers should follow the path shown by Québec in Canada.
There, a moratorium on new mining operations has been imposed.
Although Bitcoin might be a decentralised currency, many aspects of the ecosystem surrounding it are not.
So, large-scale miners can easily be targeted with higher electricity rates, moratoria, or, in the most extreme case, confiscation of the equipment used.
Governments can also ban cryptocurrencies from digital asset marketplaces as it will affect the prices of a digital currency.
What is the case with India?
The country, at present, has around 75 lakh cryptocurrency investors.
They have together pooled in over Rs 10,000 crore into Bitcoins and other such digital currencies.
The prices have surged by over 900%, given the worldwide boom.
A single bitcoin that used to cost around Rs 4 lakh in 2020 now costs somewhere around Rs 41 lakh.
However, reportedly, the government seems to plan to pass the pending cryptocurrency Bill that puts a complete ban on and criminalises possession of Bitcoins.
Finance minister has however said that the Centre will take a “calibrated approach” and leave a window open for experiments with blockchain technology.
