Are Cryptocurrencies A Sustainable Payment Solution?
Are there more environmentally friendly solutions that we could use instead of cash? Could cryptocurrencies, like Bitcoin, and payment cards be a sustainable solution, considering crypto has a considerable environmental impact?
Is Cash Environmentally Sustainable?
Note-making and ATMs’ electricity consumption contributes significantly to global warming. European countries had agreed to increase the use of sustainable cotton in banknote production to 34% by 2020 and recycle coins’ metal. However, the American Council of Science and Health argues that the production and transport of coins have led to the emission of over 48,000 tonnes of carbon dioxide. Just, in 2015, the Global Warming Potential (GWP) of Dutch cash payment amounted to 17 million kg of CO2 equivalents.
To tackle this issue many countries introduced polymer notes instead of paper notes. However, according to Evergreen Finance London a polymer note has higher GHG emissions than a paper note. Manufacturing a paper note of 5£ has a 1.8 kg CO2 -E carbon footprint. For a polymer 5£ note, the carbon footprint is up to 4.97 kg CO2 -E.
Should we go back to paper notes? Probably, not.
Going Cashless is the Sustainable Future: Cryptocurrencies
Cash, in the future, will probably disappear. Many countries like Sweden, China, and the UK are moving forward towards a cashless lifestyle and people are choosing more and more alternative solutions including payment cards. Other payment options like cryptocurrencies are becoming more popular. Could those help us going towards a more sustainable future? Apparently yes.
Cryptocurrencies seem to be a sustainable alternative to cash. Taking into consideration all that needs electricity in the traditional banking system, including data centers, ATMs, corporate offices, transportation, etc, cryptocurrencies consume less than 40% of traditional banking.
However cryptocurrencies still mostly run on fossil fuel and one year of Bitcoin mining consumes more energy than the Philippines. Through mining, cryptocurrencies are put in circulation. This process requires sophisticated computers to solve incredibly complex computational math problems that add a block to Bitcoin’s blockchain, rewarding miners in Bitcoin. This mining process also needs a lot of maintenance and since cryptocurrency is a decentred system, it is necessary to have a system that allows miners to check all the transactions that are carried out. Therefore this requires an enormous amount of electricity.
Is There a Sustainable Solution?
A sustainable solution could be using renewable energy for crypto mining. Cryptocurrencies markets placing mining centers close to renewable energy farms can indeed use the overproduced electricity that otherwise would be wasted. According to Cambridge’s Global Cryptoasset Benchmarking Study in 2018, 39% of mining was powered by hydroelectric energy in an attempt to make Bitcoin mining greener. Still, as in China and Canada, many Bitcoin miners use low-cost hydropower for a while and then return to fossil fuel.
Unfortunately, as the economist, Alex de Vries affirms “the use of clean energy can’t help in Bitcoin environmental sustainability” Hydroelectric can sustain Bitcoin mining during the wet season but hydroelectric electricity could not support all year demand because Bitcoin mining runs 24/7.
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Cryptocurrencies: a Sustainable Dilemma
In some areas, a large amount of renewable energy goes unused because of low economic activity. Bitcoin mining businesses use this hydro-powered excess electricity, that otherwise would be put to waste, especially in the spring and summer seasons. However, considering that cryptocurrencies’ users are likely to increase, Bitcoin’s energy consumption and its e-waste remain rather significant. Bitcoin in one year produced 11.41 kilotonnes of electronic waste compared to the 12 kilotonnes of Luxemburg.
What mostly produces e-waste is the mining hardware. Miners produce crypto, like Bitcoins, through specialized hardware requiring enormous energy to generate hashes. Hashes are computations of 64-digit hexadecimal numbers that miners try to come up with, converting mathematical inputs. The hardware to obtain Bitcoin as a reward must efficiently compute the more possible hashes per unit of energy. Every 1.5 years, hardware becomes obsolete, and since hashes have a one-way function and the hardware has no other use than mining, it immediately turns into electronic waste.
Renewable energy won’t solve Bitcoins’ electronic waste issue because the problem is the mining process.
Whether or not a cashless society will be the future, economists expect cryptocurrencies to quickly grow. So, it will be necessary to keep looking at cryptocurrencies’ environmental impact and improve their sustainability.
Alex de Vries believes that a sustainable solution could be replacing the cryptocurrency mining mechanism. Once miners have computed hashes these need to be verified. Verification happens through the proof of work systems that prevent miners from printing extra coins or double-spending.
This system needs powerful computers that use an incredible amount of energy to compute simultaneously a limited amount of mathematical equations (cryptography). Miners should instead use the Proof of Stake that is more sustainable because it attributes mining power to the proportion of coins held by a miner not being bound to the number of computations. Ethereum is currently moving in that direction.
Energy consumption and e-waste are mostly a problem of cryptocurrencies, like Bitcoin, that use proof of work. By changing their mining process, cryptocurrencies using proof of work could cut their energy consumption by 99.99% and become an interesting payment solution for those who wish to stop using cash.
Editor’s Note: The opinions expressed here by Impakter.com contributors are their own, not those of Impakter.com