Cryptocurrencies such as “Bitcoin” should be used as digital currency. Instead, they became popular as speculative investments.
Aside from being resource intensive and wasteful in nature, cryptocurrencies are also incredibly volatile. The prices of the largest cryptocurrencies, Bitcoin and Ethereum, have dropped more than 55 percent in six months, prompting some to argue that regulation is needed to curb chaos.
Some attribute the drop in prices to a particular contagion, a collapsed “stable currency” called TerraUSD, which should be pegged to the US dollar. But the current cryptocurrency market crash is likely a combination of many factors.
Interest rates have been close to zero for years, making bank bonds and treasury bills boring as investments, while the non-refundable digital tokens (or NFTs) associated with cryptocurrencies and technology looks fascinating.
However, the US Federal Reserve and Bank of England have recently raised interest rates since 2000.
Bitcoin is designed to be indifferent to governments and banks, but investors often are not. They cut sources of risk from their wallets and give up cryptocurrencies.
Cryptocurrency loss or climate change?
The most polluting “Proof-of-Work” cryptocurrencies such as Bitcoin, Ethereum, and Dogecoin use approximately 300 terawatt-hours (TW/hours) of essential fossil-fueled electricity per year.
Bitcoin has an annual carbon footprint of approximately 114 million tons. That’s roughly equivalent to the launch of 380,000 space rockets, or the Czech Republic’s annual carbon footprint.
Proof of Work mining can be thought of as a controlled form of energy waste. The process involves special computers repeatedly taking random snapshots to predict a long string of numbers. The amount of computing power devoted to this effort is referred to as the network hash rate.
And if the hash rate drops for any reason, for example, due to a power outage or a price drop, the difficulty of the guessing game is automatically adjusted to ensure that the network finds a new win every ten minutes. Each winner will have the opportunity to verify transactions taking place on the network and will be rewarded with 6.25 newly created bitcoins.
Whether the guessing game is profitable depends on how much the miner pays to set up their computers and the power required to run them.
Most POW mining machines in the world use electricity from coal-fired power stations. The higher the price of cryptocurrency, the more willing cash miners will be to waste that electricity, even more than the costs of earning the reward.
As the price of Bitcoin drops, there should be less financial incentive to waste energy on Bitcoin mining. And in theory, that’s good for the climate.
But surprisingly, the network’s hashrate (and carbon footprint) is still very close to an all -time high, with an average of 200 quintillion hashes per second.
The size of this ongoing interest means that bitcoin mining at current prices can still be profitable. But until when?
– Critical points and death spirals
The value of Bitcoin has temporarily fallen below the estimated cost of production several times before, with no significant long -term damage to the hash rate. But if the market stops enough, proof-of-work cryptocurrencies will start to see a growing number of miners give up.
The highest value miners sell their Bitcoin holdings at lower profitability, creating more selling pressure in the market. Short-term surrender is common in smaller, higher value mining groups (usually with intermittent renewable energy).
But with one major miner closing down, the domino effect could cause the rapid price drop and carbon emissions of cryptocurrencies in the network to zero. This event is called the Bitcoin death spiral in cryptocurrency language.
Aside from the pitfalls in the price of bitcoin mining, there are other potential turning points that must be considered. Many large investors, especially those buying at higher prices, are now under water – filled with large bags of bitcoin.
Ban or boycott Bitcoin
Top investors may find bitcoin bear markets boring. But research shows that the environmental damage of expensive cryptocurrencies is even more troubling.
The damage from bitcoin mining is disproportionately affecting poor and vulnerable communities, as miners and crypto developers benefit from economic instability, poor regulations, and access to cheap energy.
And governments around the world want to be keen on cryptocurrencies as tools for economic growth. But the collapse shows that Bitcoin is useless as a major trading medium and a reliable store of value, bringing more pain than revenue to most users.
At the end of the global financial crisis in 2008-2010, governments promised to suppress toxic financial instruments with false valuations. The collapse of cryptocurrencies today for a global climate and a stable economy will be a blessing to all.
But if environmental regulation efforts are not globally coordinated or broad enough, climate contagion with cryptocurrencies will continue to grow.
It should be noted that the report was prepared with the participation of Peter Howson, Senior Lecturer for International Development, Northumbria University, Newcastle.
Source: Science Alert
Source: Arabic RT
