Cryptocurrencies. The subject of conversation is sometimes dark which we are sometimes faced with. Do you know yet that the activity of creation of virtual currencies is part of the most energy consuming in the world? In terms of environmental impacts, we are getting close to the same problems of data centers. China, for environmental reasons, has also chosen to stop this activity! To clearly understand this digital ecosystem, we are going here to give a definition of virtual currency and of some main terms.
Definition of used terms in cryptocurrency
We are going to propose some articles on cryptocurrencies on the site of Greenoco. We are interested in all digital positions so it was logical that this one of virtual currencies and of the carbon impact of cryptocurrencies would be addressed. You can thus refer to this article if a term shows in the following articles.
- Blockchain: it’s a technology of storage and of information transmission. This one takes the form of a database. The field of application is larger than cryptocurrencies. It can also be applied to the energy sectors, to health, etc. The blockchain or chain of blocks, don’t depend on any organism and avoid at the same time the malice and misappropriation;
- Digging, the mining: it’s the most important step in the process of cryptocurrencies creation and of blockchain base. Along this step, we check the integrity of the blockchain, we create new unities. It’s the step that allows to verify the ecosystem of the cryptocurrencies works and that he is reliable;
- Bitcoin, Dogecoin, Ethereum, etc.: It’s different names for cryptocurrencies. They don’t propose, of course, the same things. There are many hundreds of it nowadays;
- Price: you probably heard of this, it’s often used in economy which means the value on financial markets;
- Trading: exchange system of cryptocurrencies or exchange of crypto against money. We also talk about transactions.
Now that the definitions of the main terms in the virtual currencies are known, it will be easier to understand the definition of a cryptocurrency.
Definition of virtual currency
Like his name indicates, cryptocurrencies are virtual currencies. It can have many names: cryptocurrency or also crypto exchange, digital currency.
These currencies have the inventory age to be sexual because they depend on blockchains, which, we have seen it, is located in many databases. Moreover, they are negotiated, once again, outside traditional financial markets such as banks and governments!
Which allows to ensure a security and rapidity that no classic organism (like banks for example) can ensure nowadays.
Other particular specificity of virtual currencies: when one of these currencies is created, the upper limit is already defined: we fix the maximum number of currency units that could be produced, none will be manufactured. It has, in fact, no fixed value. The price is based on its rarity. Indeed, the more it’s bought and conserved, the more it will be hard to find it and so, its value increases. But this also works downward.
Environmental impact of cryptocurrencies and mining
You might ask him what an article on cryptocurrencies is on the site of Greenoco? We’re not talking at any time of environmental impact, so what’s the point?
As we said at the beginning of this article, cryptocurrencies are virtual currencies. And as a virtual object, they only exist on the Internet. This is a weight and so, an environmental impact… non negligible?
Indeed, the Bitcoin mining (only take the example of the virtual money Bitcoin), is a way to win new coins, in this case, new bitcoins. In a blockchain that uses a proof of work, it needs to answer at an equation to validate one or several blockchain(s), (which is better because the more there are validated equations, the more there are coins given in exchange of this work. And this requires a consequent material).
This allows to validate but also to ensure a certain degree of security in the use and of the cryptocurrency ecosystems. Because these are diggers that solve the equations. Moreover, if digging disappears, no more equations and so transactions… and no more economy!
And to carry out this “it needs that diggers that are in competition for the validation test a lot of possibilities. They will need to use the strength of calculation of their computers to get it. It’s for this that the network Bitcoin consumes energy” explains Claire Balva, director of the Blockchain and crypto sectors at KPMG.
This process requires the use of very powerful computers, and in particular of graphic cards, which requires a lot of energy. This energy consuming action, we already talked about in an article concerning the carbon footprint of data centers.
The number one in the world of cryptocurrency mining
In September 2021, China officially banned cryptocurrencies and so Bitcoin. And this for environmental reasons!
After a flourishing year in 2020, the year 2021 has been through a series of hard times.
This new ban, revealed by China, places the United States on the first place of cryptocurrency productors in the world. According to a study by Cambridge University, The United States is in first place, with nearly 36% of the global activity in front of Kazakhstan and then Russia.
The cost of energy is also often an important variable in the choice of implementation places of these mining farms. Indeed, in some states like New York, the energy comes mainly from hydroelectric power. The state of Texas offers a supply of electricity being part of the cheapest in the world because it comes from the wind turbine. But this is unfortunately not always true. Here’s why the ecosystem of cryptocurrencies is still energy consuming, we’re going to see this in detail.
And in terms of energetic consumption, what is the impact of cryptocurrencies?
Concrete impact of cryptocurrencies
Even if it’s a question of benefit and easy money, cryptocurrency mining has a dark side. It’s very energy consuming and its carbon footprint is colossal. It’s besides also faced to financial issues, which it doesn’t make this activity accessible for everyone, finally:
- We have seen it: digging requires material resources: computers very powerful which, to work, require energy. The Bitcoin digging, represents (according to some estimations) a higher electric cost at the one of a country like Finland. We can in conclusion through this example the huge carbon footprint generated by the mining of this cryptocurrency. Which is in fact, generates high costs. It’s for this reason that diggers tend to set up in regions where the electricity is cheaper;
- Mining is more and more common in regions where electricity is cheaper. The problem of this huge immigration and of the exponential development of the activity is that this generate a great pressure on infrastructures which, first, are not built to welcome a such demand;
- It exists states where the main source of energy can come from green energies. However, it’s still not the case. China, before prohibiting mining in all the country, used fossil energy to power the mining stations. Indeed, coal-fired power plants which should close, have finally been reopened to power these stations. In 2020, the mining of the Bitcoin in China was fed up to 40% by coal according to a study published in the Nature revue.
Yet, China isn’t the only country in this case.
- As we have seen it in an article before, the creation of digital objects also has a human and environmental cost: in terms of material extractions, of personal exploitations that work to gather and build computers. This adds pressure on natural resources more and more rare.
- Finally, if at the beginning of cryptocurrencies, a computer was enough to mining, today it’s necessary to massively invest in a material or in a mining farm to hope to gain some rewards. This has a cost that is not accessible to everyone. Every piece of which diggers need, and in particular the RIG can cost some thousand dollars.
To discover the amazing numbers of the pollution caused by cryptocurrencies, discover our article: Cryptocurrency and CO2 impact: what balance?
The crypto exchange and the mining of cryptocurrencies, all like the use of data centers, is an invisible pollution but yet really real and colossal. Its disproportionate impact touches the whole world. By continuing to use fossil energies to feed the mining farms, we are still not in a logic of CO2 reduction. The carbon footprint of cryptocurrencies is, for the moment, far from being anecdotic.
To make this activity “more green”, the use of 100% of green energy is nowadays impossible, so some think of carbon compensation…
We can therefore ask ourselves if carbon compensation is a good or a bad idea?
Don’t hesitate to discover our article on this topic.
So how to reduce the carbon footprint of cryptocurrencies? New algorithms and blockchain models allow now to take into account the consumption of resources, to reduce the needs still by having a secured system. It’s the case of Chia for example, founded by the founder of the platform BitTorrent. Other currencies, such as the FairCoin, gather notions of sustainable development for a better wealth distribution, still by limiting the energetic impact generated by the creation and the management of this currency.
One of these questions we should ask ourselves is the one of the use. When is it timely to use a cryptocurrency, and when is it not necessary? If the use of the Blockchain allows to consider new uses more secured and more independent, it’s not because we can do this technically, that we should do it. But here the question of digital sobriety (or digital frugality) can be asked.
On our side, at Greenoco, we don’t use the cryptocurrency of blockchain yet. But we think for example to create a cryptocurrency restful on a mechanism with a low consumption in resources and in electricity. For example, to follow the carbon compensation projects, or to generate tokens at every ton of CO2 economized thanks to the use of Greenoco. To be continued…
For now, we’re continuing to measure and reduce the digital carbon footprint, thanks to audits of optimization, and it’s not that bad.