Your Crypto Loss Might Be the Climate’s Gain

Crypto

CryptoCrypto price collapse offers hope for slowing climate change, hence it is the climate’s gain 

Cryptocurrencies like Bitcoin were meant to be used as digital cash. Instead, they’ve become popular as speculative investments. As well as being resource-intensive and inherently wasteful, cryptocurrencies are also incredibly volatile. Prices for the largest cryptocurrencies, Bitcoin and Ethereum, have both dropped by over 55% in six months, leading some to suggest that regulation is needed to contain the turmoil.

Some are blaming sliding prices on one specific contagion, a collapsing “stablecoin” called TerraUSD which is supposed to be pegged to the US dollar. But the current cryptocurrency market crash is more likely a combination of lots of factors.

If the hash rate drops for any reason, such as power outages or price drops, the difficulty of the guessing game will automatically adjust so the network finds a new winner every ten minutes. Each winner then attempts to verify the transactions taking place on the network and receives 6.25 newly minted bitcoins.

Whether the guessing game is profitable or not depends on how much the mining companies paid to set up their computers and for the energy to run them. A 2020 survey found that 39% of the electricity powering proof-of-work mining equipment comes from renewable energy, meaning the majority is met by fossil fuels, of which coal plays a leading role. The higher the cryptocurrency price, the more cash mining outfits are willing to squander on that stream until the cost of profit outweighs the rewards.

With the bitcoin price falling, the financial incentive to waste energy on bitcoin mining should be less. In theory, this is good for the climate. But surprisingly, the network’s hash rate (and carbon footprint) remains very close to its all-time high, averaging around 200 trillion hashes per second. The level of this continued interest means that Bitcoin mining is likely still profitable at current prices.

 

Bitcoin bear markets a bore?

Prominent investors may find bitcoin bear markets a bore. But research shows the environmental losses from high-priced cryptocurrencies are far more disturbing.

The damage caused by bitcoin mining disproportionately affects poor and vulnerable communities, as mining outfits and crypto developers take advantage of economic instability, weak regulations, and access to cheap energy. Locals wanting to use these resources for productive purposes can be priced out by bitcoin miners. These communities also tend to face the sharp end of the climate crisis, which crypto mining fuels.

Governments worldwide want to appear keen on cryptocurrencies as tools for economic growth. But the crash shows that bitcoin is both useless as a mainstream means of exchange and as a reliable store of value, bringing most users far more pain than profit.

In the aftermath of the 2008-10 global financial crisis, governments promised a crackdown on toxic financial instruments with make-believe valuations. For the global climate and a stable economy, cracking down now on crypto will be a boon for everyone. But if environmental regulation efforts are not globally coordinated or far-reaching enough, crypto’s climate contagion will continue to grow.