Amidst the loud hum of computers, digital gold is born. Churning and churning, hundreds of
computers mine for a new form of currency. One that professes to be the decentralized,
deflationary disruptor of the modern banking system. It goes by many names, DogeCoin,
VibuCoin, Etherium, and Bitcoin. But they all can be called cryptocurrencies. This is the
story of the new digital gold. How it works, its consequences, and what a crypto future looks like?
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What is Cryptocurrency?
In the digital age, money is taking a new form. If you’re like me, you’ve probably heard people talk
about Bitcoin mining or the volatility of Crypto or Tesla’s recent $1.5 billion Bitcoin investment
and just nodded your head obligingly without a clue as to what any of that really means.
Here’s a quick overview. In very simple terms, cryptocurrencies, like Bitcoin or Ethereum,
are decentralized monetary systems that rely on cryptography for security and validity,
and the acquisition of this digital currency involves hundreds of specialized computers run
by miners to solve math problems in what’s called a “proof of work” model. There are
other models like proof-of-stake too, but we’ll get into that later. For this video,
all you need to know is that cryptocurrencies are valuable, much like real gold, because they're
finite and cracking math problems requires a lot of energy and time. And it’s there,
in the physical space where crypto is created, that these digital currencies run into problems.
The Problem with Crypto Drive three hours north of Sydney,
Australia and you’ll run into a coal-fired power plant. One that, up until recently, was shut down,
but now is churning out electricity for a single company. A Bitcoin operation. That’s right,
the Bitcoin mining subsidiary of Australian tech company IOT penned a deal to gain
exclusive access to the coal plant to satiate the energy appetite of its mining operations.
This deal was born out of the simple reality of cryptocurrency mining: the cheaper the energy,
the more money you make. That’s because cryptocurrencies require a massive amount of
energy. Cambridge University’s Bitcoin Electricity Consumption Index estimates that global Bitcoin
mining operations consume an average 136.33 TWhs of electricity every single year, while another
Bitcoin energy consumption tracker estimates that the consumption level is a bit lower at around
87 TWh per year. To put that in perspective, you could power all of Sweden for a year with that
kind of electricity consumption. And that’s just for Bitcoin, there are hundreds of other types
of cryptocurrencies out there that also require large amounts of power. The concerning aspect
of this massive energy consumption is that only an estimated 39% of it runs on renewable energy,
which includes hydropower. As a result if Bitcoin electricity consumption rises to 184 TWh per year,
which a recent paper from Alex de Vries suggests it will, the carbon footprint of
mining could be as much as 90.2 million metric tons, which is about the same yearly emissions
footprint as Belgium or Chile. And, that’s just for Bitcoin. According to Christian Stoll et al.,
understudied cryptocurrencies add another 50% on top of Bitcoin’s energy consumption. While
another study goes so far as to say that Bitcoin emissions alone could push global
warming above 2°C. But here’s the thing, because Bitcoin and other cryptocurrency
mining operations are scattered throughout the world it’s hard to get solid numbers on
energy usage. While these estimates are definitely accurate, it’s hard to know for certain the real
scale and energy intensity cryptocurrencies, especially as Bitcoin prices skyrocket and
new mining operations continue to come online. Regardless, we are adding energy consumption
demands equivalent to whole countries in a time when we need to be doing the exact opposite.
The Promise of Crypto? Despite these numbers,
there seems to be a level of optimism in the Bitcoin and cryptocurrency community. Indeed,
as I mentioned before, Tesla recently invested 1.5 billion into Bitcoin. In regards to energy usage,
crypto proponents argue that precisely because mining operations require so much energy,
they are incentivized to find the cheapest source, which means that as renewables continue to plummet
in price, crypto miners will naturally gravitate towards them. While this does seem to make sense
in theory, and indeed is happening right now with some miners, an energy researcher at the Technical
University in Munich, Christian Stoll, puts it bluntly “Coal is fueling Bitcoin.” At the moment,
roughly 65% of bitcoin mining happens in China, and most of that is run on coal. Despite this,
crypto enthusiasts point to the industry's tendency to seek out “wasted” energy.
Once again while this does seem like a great, quasi-sustainable solution, it’s not. Capturing
and using flared gas only prolongs the existence of the oil and gas industry by monetizing their
waste products. Essentially, natural gas operations can make even more money than
they have before, which fossil fuel operations are loving. In an article from Oilman Magazine,
they delineate step-by-step why Bitcoin is great for the longevity of natural gas operations.
Finally, cryptocurrency wonks often point out that our current banking system most likely
has a similar footprint. While that could be true, it misses the broader issue: Bitcoin is
not currently replacing the global financial system, nor will it in the next 10 years when
we need to be drastically reducing our emissions footprint. In fact, banks are using investments in
gold to hedge against the volatility of Bitcoin. In short, cryptocurrencies are adding on top of,
not replacing the current system. And at a time we need to decrease global energy consumption
to ease the transition to renewables, this addition means we’re doing the opposite.
We’re adding more and more demand on top of an already bloated electricity consuming world.
A Word on Crypto Colonialism
After Hurricane Maria, Puerto Rico was reeling. People were swept away by violent storm surges
and power went dark throughout the country. Puerto Rico was in shock. And, like any good capitalist
venture worth its salt, crypto-entrepreneurs moved in quickly. Quite literally, new billionaires rich
off of the back of crypto mining, like Brock Pierce, descended on Puerto Rico with visions of
transforming the island into a crypto-utopia, buying up post-disaster land for cheap,
privatizing public assets and enjoying the low tax rates. This is the new crypto-centered version of
what Naomi Klein calls the “shock doctrine.” And this digitally-driven capitalist colonialism seems
to be spreading across the globe. In the Democratic Republic of Congo for example,
foreign bitcoin miners get special access to the cheap, clean energy of the hydroelectric dam in
Virunga National Park. A dam originally built to supply needed electricity to help locals
find livelihoods beyond poaching and stop them resorting to scouring parkland for wood fuel.
But the Bitcoin mining operations aren’t supplying jobs, they’re just sapping energy to enrich people
halfway across the world. In a paper on crypto-colonialism, Peter Howson,
Senior Lecturer at Northumbria University, argues that “blockchain technology is enabling new forms
of resource appropriation from the Global South. These appropriations include land, labor, data and
other resources needed to facilitate economic growth elsewhere.” So, while cryptocurrencies
are just a technology, they are being used in ways that increase global inequality and exploitation.
The Future of Crypto Most of the problems that
cryptocurrencies face are not necessarily due to the nature of the digital currency, instead they
seem to be grappling with the harms inherent in making money in a capitalist imperialist
world. One that's addicted to fossil fuels, and, as a result, subsidizes them to no end.
There are some potential solutions to crypto’s outsized energy footprint, however. Transitioning
from a proof-of-work to a proof-of-stake modeled cryptocurrency could theoretically reduce the
digital currency’s energy requirements by eliminating the need for mining operations
and replacing them with a weighted lottery system of sorts based on the amount of stake or coins of
the validator. It’s a little more complicated than that, but I’ll put some links in the description
if you’re interested in learning more. It looks like a promising solution. At the end of the day,
it seems to me that, in their current form, Bitcoin and many other forms of cryptocurrencies
are unsustainable, especially in a world that can’t keep itself from guzzling fossil fuels.
At the same time, it’s important to note that cryptocurrencies are relatively new technologies,
meaning there are potential avenues to shape it for the better. But for those avenues to succeed,
cryptocurrencies need to transition away from a high energy consumption model
drenched in fossil fuels and end all exploitative relationships with the majority world. Whether
they’ll be able to able to extract themselves from these harmful paradigms is hard to predict,
but it needs to happen if cryptocurrency wants to truly disrupt the world of finance.
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