Bitcoin: A Path to Fulfillment or Ruin?

People are recognizing the need for a different cryptocurrency solution, one that admits the reality of climate change and helps lower carbon emissions in addition to democratizing finance.

Reading Time: 2 minutes

Bitcoin mania is built on a utopian premise—a dream of democratic finance that removes power from big banks, hedge funds, governments, and other potentially corrupt institutions. The blockchain ensures that the accounting of cryptocurrency and other assets happens through a decentralized network of computers that ensure the accuracy of the ledger. The fundamental belief in a better future, however, is contradicted by the reality of bitcoin itself, which contributes to the future climate crisis.

Cryptocurrency is extremely energy-intensive due to the amount of power needed to run the computers as they solve challenging math problems required to verify transactions, known as “mining.” These “proof-of-work” problems were intentionally made difficult by the inventor of blockchain to prevent the addition of fraudulent entries. The problem solvers are rewarded for their work in bitcoin much as gold prospectors used to be rewarded for their efforts in valuable nuggets. This time and energy-consuming process of bitcoin “mining” might seem like wasteful “busywork,” but it is structurally essential to make the digital currency work.

Recent estimates place the total energy consumed by bitcoin alone as more than that used by Argentina. The market heat for other crypto-assets, like non-fungible tokens (NFTs), has brought more scrutiny to the energy costs. NFTs run on blockchain, the same technology as bitcoin, and similarly use a network of distributed computers to verify the uniqueness of assets (with the requirement that they solve hard math problems which burn energy). NFTs allow artists and other cultural figures to sell proof-of-ownership tokens to otherwise publicly accessible digital assets. For instance, Twitter co-founder and CEO Jack Dorsey auctioned off the first-ever Tweet as an NFT for $2.9 million. With notable contemporary artists and inventors of conceptual art like Damien Hirst selling NFTs for digital artwork, some eco-conscious collectors have noted that these projects come with massive energy bills. Hirst’s recent NFT project was estimated to require the energy that would be consumed over 412 years by the average household in the U.S. Others have noted the irony that Tesla Motors heavily invests in bitcoin despite marketing an eco-friendly lifestyle.

Defenders of blockchain’s carbon footprint claim that mining will lean toward renewable energy and that miners have the incentive to find the cheapest and most sustainable way to access tokens. However, cheap and sustainable are far from the same thing. A large percentage of mining takes place in China, which uses coal as the predominant form of energy.

Unfortunately, crypto-boosters are simply naive about this problem or in denial. An even more pessimistic view is that many are willing to easily jump from one bandwagon to another in our hashtag-driven culture while forgetting what they were excited about. #Savetheplanet was switched out this season for #buycrypto without so much as glancing back, with Elon Musk at the head of this merry band of trendsetters.

Some recognize the need for a different cryptocurrency solution, one that admits the reality of climate change and helps lower carbon emissions in addition to democratizing finance. SolarCoin, for instance, rewards users with crypto tokens for generating solar energy. While a noble idea, it has yet to gain significant traction, in part perhaps because claiming SolarCoins requires filing verification paperwork with a central entity that distributes them. This administration is cumbersome but more importantly seems against the decentralized spirit of crypto. The next generation of innovative engineers, many of whom are likely at this school, have a responsibility to develop a truly effective eco-crypto solution. In the meantime, eco-conscious investors looking for the next big score may want to look elsewhere.