High Power Consumption: Are Cryptos Becoming A Climate Killer?

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

In the last few years, many things have happened. The development of the human race is an interesting and fast one but definitely not without its costs and hurdles. Compromises have to be made, new ways and approaches have to be found, old systems have to be reformed in order to maintain our life here on earth. While the fast development of technology looks promising and gives the impression of offering solutions to the big global challenges, capitalism and greediness work in the opposite direction and tend to consume the few resources we have, closing doors for future generations.

Humanity faces different problems at the same time. Two of the biggest challenges are on the one hand obviously the global pandemic that has a firm grip on each and every one of us these days and just marks the start of upcoming problems resulting from globalization and overproduction. On the other hand, we are facing a much more difficult challenge which has been known for years although less has been done by governments and global major players despite big activism and discussions arising in the global community. This challenge is climate change.

New technological developments have come up claiming to offer new solutions to those problems by being more sustainable and innovative than the former ideas. One example may be Elon Musk and his car brand Tesla TSLA who aim to find new approaches and lead with visionary ideas towards the future. Electric cars and more effective batteries are one big step towards a more efficient lifestyle.

Another very innovative development is the appearance of cryptocurrencies like Bitcoin which introduces a completely new concept of a monetary system. Seen as decentralized, fast, digital, and innovative many branches of the market have already switched towards those new currencies. Tesla was one of the first to accept cryptos as a payment method, other branches like the gaming and gambling industry followed quickly and Bitcoin or Ethereum Casinos are now more popular than ever.

Now though the whole game has changed with Tesla suddenly pulling out of the Bitcoin business amid questioning the sustainability of the entire concept of the currency. After Elon Musk’s sudden and aggressive change of mind, the question arises whether the cryptos are really that innovative or whether they are just another step in the wrong direction. We have summed up the facts and the opportunities the cryptos have in the future.

The Mining And The Power

To understand why and how something digital like cryptos can influence the climate, one must understand how digital coins are created. Cryptocurrencies are the result of complicated computer engineering and not many see through the actual technology that stands behind the whole. The coins are created by a process which is referred to as “mining”. In order to mine, computers are connected to the cryptocurrency network to verify transactions. This complicated process involves solving puzzles that provide security to ensure no one fraudulently edits the global record of all transactions.

To cope with those immense amounts of data the computers use a lot of electricity. And here is where the problem starts. This high consumption of electricity would not be a problem if all the energy was generated by sustainable energy sources like wind or solar panels.

But as the market is still an extremely competitive place, the miners often choose the locations with the lowest energy prices to operate. While private users just simply use their own personal computer to mine, big companies have popped up focusing only on mining Bitcoin by building huge warehouses full of computers.

In the past, many of those huge mining firms chose China as the location for their mining plants. Unfortunately, most of the energy consumed by those plants originates from coal which has an extremely negative impact on the environment and is seen as one of the key problems of climate change. The mining plants' demand of energy is so incredibly high that the computing needed to support Bitcoins underline network now requires nearly as much energy as the entire country of Argentina.

The computing needed to support Bitcoins underlines network now requires nearly as much energy as the entire country of Argentina which equals the amount of 13.000.000.000.000 Watt per year.

Carbon Footprints

Whether it is just a publicity stunt of Tesla or not, the claim is serious and reasonable. The mining of cryptos and the process of transaction require huge amounts of energy resulting in big carbon footprints. In fact, superfast transactions via cryptocurrencies are way less sustainable than ordinary transactions. One average Bitcoin transaction has a carbon footprint of around 360 kilograms per transaction.

Looking at the environmental impact of other payment methods shows that Visa for instance has a carbon footprint of around 500 milligrams per average transaction.  This means that the carbon footprint of a Bitcoin transaction is actually 800.000 times bigger than the carbon footprint of a normal transaction.

Furthermore the consumption of those plants also directly influences the habitat of the people living nearby. The demand for the electricity grids has a big impact on the local communities. In some countries where crypto mining plants sprung up increasingly, their demand on the grid eventually caused major blackouts in big cities. China, which was one of the most popular locations for mining plants, recently started to crack down on mining firms for this reason.

What Must Happen?

Even if you are a big fan of cryptos you must accept the fact that the concept of Bitcoin is not as sustainable as it seems so far. But this does not have to mean the end of the cryptocurrencies. Of course, one aim of the cryptos is to improve the monetary systems, but many believe in it as a new solution that can actually help to tackle the challenges we are facing now. Digitalization has been recognized as one of the keys to combat climate change.

Now that Tesla pulled out and put focus on the issue it is likely to see Bitcoin and the other cryptos quickly find solutions and figure out new sustainable energy sources. In fact, Elon Musk said he will keep his Bitcoins until a more sustainable way to create coins without impacting the environment.

This means that Elon Musk is actually believing that new ways will be found quickly. We can trust the market to regulate itself and find quick solutions to the challenges we are facing. Bitcoin and its little siblings may not remain part of the problem for a long time, but very well be the solution.

Image Sourced from Pixabay

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.