What is the issue?

• 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.

Source: The Indian Express