crypto and the environment

world of ether — a game centered around cryptocurrency collectibles

The development of cryptocurrency was a technological innovation that had a huge impact on the economy, the environment, and society as a whole as it exponentially grew in popularity and use in the past decade. While the technological mechanics of how cryptocurrency works and the economic impacts of the decentralized financial model ushered in by the widespread use of cryptocurrencies are often discussed, something that is often left unaddressed is the environmental impacts of the use of cryptographic applications, specifically cryptocurrencies. Consequently, many are left unaware of the fact that the generation of cryptocurrency units and the transactions in which they are transferred take huge tolls on the environment such that they are single-handedly capable of setting humanity back decades worth of environmental initiatives and significantly accelerating the depletion of Earth’s resources and damaging of Earth’s surface and climate (Edgell 76).

To understand cryptocurrencies and their effect on the environment, one must first have a reasonable understanding of their basis — cryptography. At its core, we can define cryptography as a modern-day study of encryption. Cryptography is the field that encompasses the attempt to engage in secure or private forms of communicating while minimizing the risk of leaking information or rendering said information vulnerable to hacking by third parties. These third parties are referred to as adversaries. The way the security of the data transfer is fortified from the sending to receiving parties, and therefore protected from adversaries, is through the encryption of the initial raw data (also known as the key) into ciphertext, and then the decryption of the ciphertext into the original key for the receiver to understand. The key underlying technical mechanism of cryptography is number theory — this is important because we will later see that the number theory calculations necessary for the upkeep of cryptographic function are very computationally expensive and require not only obscene amounts of energy but also result in a lot of tangible waste. The number theory that constitutes the basis of cryptography is essentially the use of large prime factors to produce a large number, which is then difficult to break down, to encode very difficult to resurface (i.e. therefore private or secure) information (Lehman et al 243).

Cryptography is often described as revolutionary. The question left to ask then is “what is the use of all of this energy expenditure? What is the benefit of cryptography and what are its applications?”. Well, for one thing, cryptography, as mentioned earlier, facilitates secure communication. We need secure communication for several reasons in the modern technological age, including, but not limited to things like secure communication during wartime and to keep confidential online documents that necessitate sharing privately. Most people (i.e. the average civilian) can utilize everyday applications of cryptography too, such as secured online shopping and selling so that your bank information and address are between you and your vendor/customer, to check private information shared with you from institutions such as checking one’s grades online, and for sharing private information in social settings, such as private messaging (Lehman et al 243).

At this point, it’s natural to wonder what the connection is between currency and secure communication — that is, just how we get tender via secret codes. First, for any currency to be valid there are a few criteria that it has to meet. Frankenfield defines these criteria as that it “should be verifiable by others that it is indeed your signature; it should be counterfeit-proof such that no one else can forge your signature, and it should be secure from any possibility of denial by the signer later — that is, you cannot renege on a commitment once signed”(1). How this applies to the application of cryptography is that RSA encryption can be utilized to verify the unique numerical signature produced by the sender, and it can be decrypted by the receiver. Additionally, because the initial sender’s key is private, it can not be forged, and again, due to the mutually private nature of RSA keys on either end, it can not be reneged by the signer.

Given this background on cryptography, we can now discuss one of its applications: cryptocurrencies. Cryptocurrencies are digital currencies that utilize algorithms to verify their uniqueness. Information about them is recorded in the blockchain, a digital means of recording information about cryptocurrency. The basis of cryptocurrency is cryptography, hence the name that was coined in 1998. Most modern cryptocurrencies are decentralized — transactions happen directly between parties without there being a centralized institution. Naturally, the following question would be “Where exactly does the value that backs these virtual currencies originate from?” The answer to this is that the “value” assigned to coins is like that of traditional tangible currencies — defined by the market and how much demand relative to supply exists for a given type of cryptocurrency (Frankenfield 1).

Finally, Cryptocurrency mining is the process in which new units of cryptocurrency are released into circulation in exchange for validating transactions between users, adding the transaction to the blockchain public ledger. The cryptocurrency mining process is one of the central aspects that makes cryptocurrencies work via peer-to-peer decentralized networks (Mukhopadhyay et al. 1).

Case 1: Bitcoin

Bitcoin, an international digital currency, emerged in 2009 as a result of the global economic recession of 2008 as well as an excessive global reliance on banks as the facilitating third party for financial transactions. Although the development of Bitcoin’s design is considerably innovative, it has accumulated several substantiated criticisms in its decade of existence. It was estimated that in 2017, approximately 69 million metric tons of CO2 emission was attributed to bitcoin mining. The current large-scale usage of cryptocurrency like bitcoin is not only energy- inefficient, but its current usage also fuels the rapid decline of the global environment through the exploitation of energy sources without regard to their effect on the environment (Das et. al 186).

Greenhouse gases are primarily responsible for the warming of the Earth. As explained previously, studies have shown that Bitcoin contributes to this. The global collective value of cryptocurrencies (cryptocurrencies alone, not general digital assets or NFTs) is valued at 2 trillion US dollars. This accounts for about as much capital as the amount of gold stored globally for private use. Furthermore, to put into perspective the amount of energy consumption used by Bitcoin it might be helpful to discuss the amount of energy consumed by internet usage worldwide. Bitcoin alone accounts for about .7% of all global energy usage (which is to say, this isn’t accounting for the other approximately 70% of the world’s cryptocurrencies), with only 1.3% of the world’s population involved in any bitcoin transactions, whereas 59.6% of the world’s population uses the internet. Among these criticisms are claims of resource inefficiency as well being detrimental to the environment. Bitcoin relies on bitcoin mining — that is, the addition of new bitcoins into circulation — to maintain value and for validity as a currency. However, bitcoin mining is incredibly wasteful in the amount of electricity it requires to efficiently enter new coins into the system. The cost of the bitcoin mining process consumes well over hundreds of dollars worth of electricity in a day. Such an amount of electricity being used in a single day, when taking into account the minuscule amount of bitcoins being mined is indicative of the disastrously wasteful and inefficient nature of bitcoin mining. This poses a grave issue as large amounts of electricity being used result in increased CO2 emissions (Egiyi et al. 18).

As stated earlier, the key underlying technical mechanism of cryptography is number theory (i.e. the algorithms we use to verify keys). This is relevant because the calculations necessary for the upkeep of cryptographic functions are very computationally expensive. Consequently, cryptocurrencies like Bitcoin require not only obscene amounts of energy but also result in a lot of tangible waste. Bitcoin alone in 2017 (at which point bitcoin consumed far less energy) utilized more energy than the Czech Republic, Greece, and Chile. Furthermore, in just 2017(well before cryptocurrency use and mining exponentially grew to their modern heights), Bitcoin transactions were responsible for more annual emissions than American Airlines (Mansfield-Devine 18).

Truby writes that “The vast transactional, trust and security advantages of Bitcoin are dwarfed by the intentionally resource-intensive design in its transaction verification process which now threatens the climate we depend upon for survival” and also writes that “Bitcoin mining and transactions are an application of Blockchain technology” which then would employ inefficient utilization of already limited and valuable energy resources in pursuit of financial gain when humans are already stretched to capacity at trying to move forward as a collective towards slowing climate change via the Paris Agreement and local efforts (1). Moreover, Goodkind, Jones, and Berrens estimated that for every $1 worth of bitcoin generated, about 49¢ worth of climate and health damage was incurred in the US, and 37¢ worth in China. What’s worse is that, in a 2018 study, they found that, when more holistic cost-benefit analyses were conducted, there was a $1 to $1 ratio for the monetary value of bitcoin generated and immediate financial value of environmental damage inflicted. If the above weren’t enough, experts theorize that Bitcoin’s emissions could single-handedly push the Earth to heat the planet past the 2 degrees Celsius mark by 2034 (Edgell 76). In sum, the numbers provide pretty incriminating evidence and make a strong case for the negative impact of cryptocurrency on the environment in and of itself.

Case 2: Other emergent currencies

Some are unaware of the fact that other forms of cryptocurrency exist beyond Bitcoin. Today cryptocurrencies such as Ethereum, Dogecoin, and Cardano are rising in popularity. Therefore, it follows that it would be important to discuss other emergent currencies beyond Bitcoin to truly understand the impact of cryptocurrencies in general on the environment as opposed to solely Bitcoin.

If the greenhouse gas emissions and energy consumption of Bitcoin seemed concerning, other emergent cryptocurrencies are far worse. Gallersdorfer et. al write that “Bitcoin, for instance, uses the SHA-256 algorithm that allows for mining with highly specialized, ASIC-based devices, which are considerably more energy-efficient than conventional graphic processing units (GPUs). GPUs are used, for instance, to mine Monero that prevents ASIC-based devices from its validation process” (3). This is all just to say that Bitcoin is very efficient relative to other cryptocurrencies that are currently on the market and growing in popularity due to the nature of the hash function utilized to make Bitcoin mining and transactions functional. As a result, it is safe to conclude that emissions and energy consumption will only continue to worsen as these coins continue to grow in popularity so long as there exists a lack of environmental regulations regarding cryptocurrencies.

Case 3: Non-fungible tokens (NFTs)

Analyzing the consumption and environmental toll of NFTs is very helpful in understanding the impact of cryptocurrency transactions on the environment.

NFTs (non-fungible tokens) is an extremely popular financial application of cryptography. They have risen almost overnight to great prominence and are often utilized to transfer digital ownership of items such as art pieces (Trautman 3). The environmental cost and energy expenditure of NFT generation and transfers is so high that they generally cost exorbitant amounts of energy. Precht, an NFT artist, publicly announced that “100 each of three art pieces, would have burned through the same amount of electricity that an average European would otherwise use in two decades” (Tabuchi 1). If we do the math (i.e 2 decades is 20*365 days of energy use, and we divide that by 300 art pieces as he said to see the impact of a singular piece, get a total of 25 days of worth of individual energy usage), that equates to almost a month’s worth of individual energy use burned through in under one minute with one virtual purchase.

Case 4: Wildlife conservation applications (and common defenses of cryptocurrency use)

Despite the overwhelming environmental damage caused by cryptocurrency and NFTs, some argue that they could be utilized for good. Mofokeng and Matima write that “the development of cryptowildlife nonfungible tokens (NFTs), which are provably scarce, unique and programmable digital wildlife collectible assets. These could be used to finance wildlife conservation as a supplementary source of revenue.” (Mofokeng & Matima 1). Additionally, the counterargument to connecting Bitcoin mining to climate change is that one can say: If clean energy is generated using renewable energy such as wind power, solar energy, and hydro dams then bitcoin mining will not contribute negatively to climate change. Bitcoin mining or cryptocurrency mining is not a power generating source that generates CO2 — it is a consumer of energy and the impact on the climate does not depend on it.

In conclusion, it is apparent that the utilization of cryptographic technology to create digital tender requires great sums of energy, and that the use of cryptocurrencies and their applications such as the buying and selling of NFTs leads to large amounts of greenhouse gas emissions, that then warm the earth and cause previously unimaginably concentrated and increased occurrences of energy consumption. We see that Cryptocurrency and Cryptography-backed assets continue to increase in value and popularity but consume egregious amounts of energy and damage the environment as a result. Lastly, while there exist some possible environmentally beneficial applications of cryptocurrency, all remain theoretical and are dwarfed by the toll cryptocurrency generation and use takes on the environment.

Works Cited

Das, Debojyoti, and Anupam Dutta. “Bitcoin’s energy consumption: Is it the Achilles heel to miner’s revenue?.” Economics Letters 186 (2020): 108530.

Edgell, Samantha T. “Toto, I’ve a Feeling the Environment Isn’t Safe from Cryptocurrency Anymore: The Degrading Ecological Effects of Bitcoin and Digital Currencies.” Vill. Envtl. LJ 32 (2021): 69.

Egiyi, Modesta Amaka, and Grace Nyereugwu Ofoegbu. “CRYPTOCURRENCY AND CLIMATE CHANGE: AN OVERVIEW.” International Journal of Mechanical Engineering and Technology (IJMET) 11.3 (2020): 15–22.

Gallersdörfer, Ulrich, Lena Klaaßen, and Christian Stoll. “Energy consumption of cryptocurrencies beyond bitcoin.” Joule 4.9 (2020): 1843–1846.

Goodkind, Andrew L., Benjamin A. Jones, and Robert P. Berrens. “Cryptodamages: Monetary value estimates of the air pollution and human health impacts of cryptocurency mining.” Energy Research & Social Science 59 (2020): 101281.

Tabuchi, Hiroko. “NFTs Are Shaking Up the Art World. They May Be Warming the Planet, Too.” The New York Times, The New York Times, 13 Apr. 2021, www.nytimes.com/2021/04/13/climate/nft-climate-change.html.

Lehman, Eric, Tom Leighton, and Albert R. Meyer. Mathematics for computer science. Technical report, 2006. Lecture notes, 2010.

Mansfield-Devine, Steve. “Beyond Bitcoin: using blockchain technology to provide assurance in the commercial world.” Computer Fraud & Security 2017.5 (2017): 14–18.

Mofokeng, N., and T. Matima. “Future tourism trends: Utilizing non-fungible tokens to aid wildlife conservation.” African Journal of Hospitality, Tourism and Leisure 7.4 (2018).

Mukhopadhyay, Ujan, et al. “A brief survey of cryptocurrency systems.” 2016 14th annual conference on privacy, security and trust (PST). IEEE, 2016.

Trautman, Lawrence J. “Virtual Art and Non-fungible Tokens.” Available at SSRN 3814087 (2021).

Truby, Jon. “Decarbonizing Bitcoin: Law and policy choices for reducing the energy consumption of Blockchain technologies and digital currencies.” Energy research & social science 44 (2018): 399–410.

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