Cryptocurrency collapse is a good thing for the climate

Cryptocurrencies such as bitcoin were meant to be used as digital money. Instead, they have become popular as speculative investments. It is not only labor intensive and inherently wasteful, cryptocurrencies are also incredibly volatile. Prices for the biggest cryptocurrenciesbitcoin and ethereum, both have decreased by more than 55% in six months, leading to some suggest this regulation is necessary to contain the unrest.

some are blame sliding prices on one specific contamination called a collapsing “stablecoin” TerraUSD which is believed to be pegged to the US dollar. But the current crash of the cryptocurrency market is more likely a combination of many factors.

For years, interest rates have been close to zero, making bank bonds and treasury bills look dull as investments, while cryptocurrencies and digital non-fungible tokens (or NFTs) coupled with works of art, look attractive. However, the US Federal Reserve and the Bank of England recently increased interest rates with the largest amount since 2000.

Continuing COVID controls and those of Russia invasion of Ukraine have also sobered the markets. Bitcoin is designed to be indifferent to governments and banks, but investors are generally not† They are cutting sources of risk from their portfolios and dump crypto

The loss of crypto, the gain of the climate?

The most polluting proof-of-work cryptocurrencies, such as bitcoin, ethereum and dogecoin, together use about 300 terawatt hours (TW/h) of mainly fossil fuels every year. Bitcoin has an annual carbon footprint of approximately 114 million tons. That is roughly equivalent to 380,000 space rocket is launchedor the Czech Republic’s annual carbon footprint.

Proof-of-work mining can be seen as a controlled way of wasting energy. The process involves specialized computers that repeatedly make random shots when guessing a long string of numbers. The amount of computing power spent on this effort is called the network hash rate.

If the hash rate drops for any reason, such as a power outage or price drops, the guessing game’s difficulty is automatically adjusted to ensure the network can find a new winner every ten minutes. Each winner is then given an attempt to verify transactions on the network and will receive 6.25 newly minted bitcoins.

Whether the guessing game is profitable or not depends on how much the mining equipment paid to set up their computers and for the energy to run them. A 2020 study indicated that 39% of the electricity that powers proof-of-work mining machines: generated by renewable energymeaning the majority is met with fossil fuels, of which coal is a leading player† The higher the price of cryptocurrency, the more cash mining outfits are willing to waste on this electricity, until the cost of winning outweighs the rewards.

With the bitcoin price falling, the financial incentive to waste energy mining bitcoin should be lower. 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, on average. about 200 trillion hashes per second† The magnitude of this continued interest means that bitcoin mining at current prices is likely still profitable. But for how long?

Tipping Points and Death Spirals

Bitcoin’s Value Temporarily Dropped Below Estimated Cost of Production several times before without significant long-term damage to the hash rate. But if the market stagnates long enough, proof-of-work cryptocurrencies will see an increasing number of miners capitulate.

Highest-cost miners are likely to sell their bitcoin holdings if profitability falls, adding even more selling pressure to the market. Short-term capitulation among smaller, high-cost mining companies (often with intermittent renewable energy) is common.

But a knock-on effect with major mining companies closing one after the other could cause crypto prices and the network’s carbon emissions to rapidly plummet to zero. This event is called a bitcoin death spiral in crypto.

In addition to the perilous prices of bitcoin mining, there are other potential tipping points to consider. Many major investors, especially those who have bought in at higher prices, are currently under water – weighed down by huge pockets of bitcoin.

El Salvador’s President Nayib Bukele has reportedly just brought his country’s total bitcoin reserve to about 2,300, or about US$72 million at current prices. His country’s crypto losses are: add to fears of an imminent default that would cause great pain to those who had no say in their leader’s gamble.

Bitcoin ban or boycott

prominent to find investors bitcoin bear markets a bore. But research shows the environmental losses of expensive cryptocurrencies are much more disturbing.

The damage caused by bitcoin mining disproportionately affects poor and vulnerable communities, such as mining equipment and crypto developers benefit of economic instability, weak regulation and access to cheap energy. Locals who want to use these resources for productive purposes can: priced by bitcoin miners† These communities also tend to face the sharp end of the climate crisis fueled by crypto mining.

Governments around the world are eager to resemble cryptocurrencies like: instruments for economic growth† But the crash shows that bitcoin is both useless and… a mainstream medium of exchange and as a reliable store of value, bring the most users much more pain than gain.

In the wake of the global financial crisis of 2008-2010, governments pledged to crack down on toxic financial instruments with fictitious valuations. For the global climate and a stable economy it is a blessing to everyone† But if environmental regulation efforts are not coordinated globally or far-reaching enough, the climate contagion of cryptos could will continue to grow

Article by Peter Howsonsenior lecturer in international development, Northumbria University, Newcastle

This article was republished from The conversation under a Creative Commons license. Read the original article

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