Instead of rejecting cryptocurrency because of climate concerns, the focus going forward should be making the industry greener and using renewable energy
Interest in cryptocurrency has recently skyrocketed, with the number of people adopting it surging to 221 million globally as of June this year. Cryptocurrency users doubled in the first half of this year. Factors like the spike in prices, recognition and support of crypto-related transactions and services, and approval of governments across the world have contributed to this rise in interest.
A cryptocurrency is a form of decentralized digital currency with transactions secured by cryptography. The validity of cryptocurrency is provided by a blockchain, which is a digital ledger of transactions. Records of new transactions are added to the blocks, which are chained together.
Bitcoin is the first and most famous cryptocurrency to have used blockchain. Following its success, several alternative cryptocurrencies called Altcoins were launched, deriving from Bitcoin. Altcoins address and improve upon shortcomings of Bitcoin such as price volatility, high energy consumption, and the time required to make new transactions.
As of March 2021, nearly 9,000 cryptocurrencies have emerged, with altcoins accounting for 40% of the total cryptocurrency mark, according to Coinmarketcap which tracks the cryptocurrency market actions. Ethereum is the most popular altcoin, reportedly being the most used blockchain in 2020, mainly owing to having one of the most sophisticated blockchain platforms. However, Bitcoin remains the most widely accepted cryptocurrency, with many large companies now adopting it as a form of payment.
Bangladesh’s stance on cryptocurrency
Bangladesh Bank does not recognize cryptocurrency as a legal means of trade or transactions and consider it a violation of the Money Laundering Prevention Act, 2012. Only eight other countries have banned cryptocurrency, whereas nine others, including Russia and China, have imposed restrictions on it instead of a ban. 111 countries, however, now recognize it as legal.
Bangladesh is now in the minority when it comes to accepting cryptocurrency. Roughly 23 billion dollars have been invested in developing blockchain-based technology globally. Experts believe that if Bangladesh sets strong policies to legalize cryptocurrency slowly, it will help the country to compete in the global race in the long run.
Strengths of cryptocurrency
The biggest positive of cryptocurrency is considered to be its decentralized nature. It is not controlled by any singular authority like the central bank. The value of money decreases with time because banks control the circulation of money, and resultant inflation or deflation in the economy, by determining when and how much money to print.
Cryptocurrencies cannot be printed and are created through a complex process of mining. Most cryptocurrencies are finite in supply, with an upper limit of circulation. For instance, only 21 million Bitcoins can be mined or brought into circulation for all time, and no more. Since there is no provision for unlimited printing, Bitcoin enthusiasts believe that its value will not decrease in the future like traditional money.
Another convenient quality of cryptocurrency is its peer-to-peer transactions without agents like banks or mobile financial services. This also makes the transactions immutable or irreversible. This can be a double-edged sword that makes the transactions more susceptible to criminal or fraudulent activities. Only transactions themselves can be traced, not those making it. Many countries are also developing anti-laundering solid policies to support smooth cryptocurrency adoption.
Concerns plaguing cryptocurrency industry
Despite its growing popularity and acceptance, criticism still exists regarding the industry. These issues include using cryptocurrency to engage in illegal activities, cybersecurity, price volatility and climate concerns.
There have been many instances of hackers stealing money through hacking cryptocurrency systems. In fact, hackers stole $600 million as recently as April 2021, exploiting the vulnerability of Poly Network, a decentralized finance platform. Nevertheless, losses from such crime in the overall cryptocurrency market reportedly dropped to $681 million, from $1.9 million for the whole of 2020 and $4.5 billion in 2019.
Another concern related to cryptocurrency is using it for money laundering and criminal activities. However, reports estimate the illegal share of all cryptocurrency transactions dropped from 2.1% in 2019 to only 0.34% in 2020. A 2020 SWIFT report also found that laundering cases through cryptocurrencies remain relatively small compared to traditional transactions.
The price volatility or unpredictable fluctuations in the real-world value of cryptocurrency makes it a riskier investment than others. The potential environmental repercussions of Bitcoin and other cryptocurrencies have also caused concerns. The market value of Bitcoin fell by more than 10% after Elon Musk, the founder of Tesla, announced that his company would not accept Bitcoin as payment due to climate concerns related to it. While these issues have made critics term cryptocurrency as a financial bubble that will soon burst, its enthusiasts are only growing in numbers.
Climate concerns surrounding cryptocurrency
The major climate concerns regarding cryptocurrency come from the mining process, which involves using sophisticated computers to solve complex algorithms which require massive amounts of energy consumption.
This also arguably carries a large carbon footprint. Bitcoin, in particular, consumes a massive amount of energy. The University of Cambridge Bitcoin Electricity Consumption Index estimated that Bitcoin currently consumes roughly 130 kilowatt-hours of electricity annually, more than Argentina, Netherlands and the UAE. According to this index, one Bitcoin transaction equals an average of 300 kg of carbon emission or a carbon footprint of 735,121 Visa transactions. However, proponents of cryptocurrency have called it an exaggeration. Also, these estimates are not 100% concrete.
Countries like China and Iceland are popular hubs for Bitcoin mining due to their cheap electricity prices. In fact, two-third of the total global Bitcoin mining is done in China, which relies on coal for electricity. To put things into perspective, the flood-led shutdown of a coal mine in Xinjiang coincided with a drop in Bitcoin’s computing power by one-third in April this year. China recently enforced a strict ban on digital asset exchange and severe restrictions to discourage crypto mining to reduce energy consumption and develop its cryptocurrency.
Despite several studies ominously reporting about Bitcoin and cryptocurrency’s massive carbon footprints, their estimates broadly vary. Also, experts believe that it is difficult to correctly translate the electricity consumption of cryptocurrency into carbon emission footprints. Besides, only Bitcoin has such a high rate of energy consumption. 1 Bitcoin transaction costs roughly 707.6 kilowatt-hours(kwh) of electricity per hour, while Ethereum only costs 62.65 kwh. Others like XRP only use 0.12 kwh.
Bitcoin supporters say that estimates of its carbon footprint are overstated and using renewable energy to support mining activities will be sufficient. Several companies are already investing in making Bitcoin a greener investment.
The climate concerns related to cryptocurrency cannot and should not be ignored. However, this industry is here to stay and grow, considering its unprecedented growth. No other industry has seen such exponential growth in real-world value. The value of any medium of exchange lies widely in its acceptance, and cryptocurrency is now precious. So, instead of rejecting cryptocurrency because of climate concerns, the focus going forward should be making the industry greener and using renewable energy, which several companies are already doing. Bangladesh should also develop a plan to slowly adopt cryptocurrency, with anti-laundering solid policies and compliance with environmental standards.
Towrin Zaman Raya is working as a Research Associate at ICCCAD. She can be reached at [email protected]