Cryptocurrency, and Bitcoin in particular, is always in the news these days and is becoming a major factor in modern financial markets. Unsurprisingly, the subject of cryptocurrency regulation has become a major concern in one form or another. China is already restricting its use. Central banks around the world are reviewing decentralized cryptocurrencies to assess their potential impact on financial stability or even to issue their own digital currencies. Chairman of the Securities and Exchange Commission Gary GenslerGary GenslerSEC Increases Disclosure Requirements for Chinese Companies Looking to Go Public in the U.S.: Report Crypto Industry Trying to Gain Momentum After Losing Senate Battle described crypto trading as the “Wild West” recently calling on Congress to create a protective regime for crypto investors. A major impasse for the Critical Infrastructure Act was the issue of taxing crypto transactions. Others have suggested that “stablecoins” be regulated like banks.
Unsurprisingly, the crypto industry has developed formidable lobbying power to fend off further regulation. The regulation is in contrast to the idea of a decentralized cryptocurrency.
However, little attention has been paid to the environmental dangers of the cryptocurrency. Yes sir, Elon MuskElon Reeve MuskThe Hill’s Morning Report – Presented by Facebook – Biden Continues to Fight Chaos in Afghanistan Can SpaceX’s Elon Musk help NASA get back to the moon by 2024? Hillicon Valley: Key QAnon influencer ‘GhostEzra’ identifies MORE drew the usual hype when he first announced that Tesla would accept Bitcoin – and then (belatedly given the science) declared that he would reverse that decision after learning of the environmental damage caused by cryptocurrencies.
The impact of the cryptocurrency on the environment is very serious indeed – possibly the single most important political factor preventing its growth.
Cryptocurrencies, especially Bitcoin and Ethereum, are so polluting that they are wiping out any gains made by moving to electric vehicles and reducing fossil fuel consumption. A large part of this consumption and output comes from the energy- and processing-intensive “mining” of Bitcoin and “proofs of work”. Bitcoin’s total carbon footprint already exceeds the total emissions reductions from electric vehicles. According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin already consumes more energy than all of Argentina (45 million inhabitants).
Digiconomist’s Bitcoin Energy Consumption Index estimates that Bitcoin and Ethereum together consume the same amount of electricity as Ukraine and Israel, a total of 52 million people. The carbon footprint of a single Bitcoin transaction is the equivalent of nearly 2 million Visa transactions or 135,229 hours of YouTube! A single Ethereum transaction consumes the equivalent of electricity used by an average US household over 4.55 days. Additionally, the energy and carbon footprint of this and other cryptocurrencies is expected to grow exponentially as speculation, hype, and crime continue to fuel volume. According to The Gaurdian, the total crypto energy consumption is already “roughly comparable to the CO2 emissions produced by the metropolitan area of London”.
Aside from these astounding energy usage statistics, crypto is also exacerbating competition for chips, which already have a shortage worldwide that is hindering the manufacture of alternative energy devices, including electric vehicles. Crypto has already grown exponentially. Further growth will only increase its carbon footprint.
Given the huge CO2 reduction targets we are facing in the US and around the world, this should affect everyone. If there were opposing gains with crypto, it could be justified on a cost-benefit basis, as we do with electric vehicles (which do some damage, but less overall than internal combustion engines). However, there are no real gains.
There are many classes of crypto adventurers: libertarian idealists who dream of freedom from sovereign monetary control; Hardware and software gamers who “mine” what it takes to be rewarded; Merchants who generate income from crypto transactions; Speculators riding the wild volatility of crypto; Crypto “wallet” raider; and criminals who take advantage of the relative degree of anonymity of crypto offerings as ransomware. Despite great claims about reducing transaction costs and getting rid of “fiat” money, none of the legitimate players have spoken out in favor of crypto contributions for the general good. Beyond rhetoric, they haven’t even tried seriously. Instead, they have relied on the naivety of lawmakers, regulators and journalists.
Well-informed commentators have described crypto as a “giant bubble”. Even so, regulators continue to show shyness when bringing up the issue. As the Biden government urges the auto industry to move to 50 percent electric vehicles by 2030, we’re ruthlessly allowing crypto to escalate at a huge current and potential cost to our carbon footprint.
China has taken at least one step towards linking crypto with climate change concerns: it banned crypto mining. This activity is only being moved elsewhere. Legislators and policymakers should educate themselves now and act quickly to stop the counterproductive growth of this industry, no matter how powerful its lobbying has become. If not, even if the global warming threat gets code red, according to the Intergovernmental Panel on Climate Change, we will find ourselves in yet another situation where an entrenched industry prevents us from advancing and promoting the common good Fight climate change.
Lawrence G. Baxter is the David T. Zhang Professor of Legal Practice at Duke University, where he also directs the Global Financial Markets Center.