Expert: Cryptocurrency crash unlikely to reduce climate impact | Cryptocurrency

An economist has warned that the collapse of cryptocurrency will not reduce the climate impact of the sector anytime soon, even though the ecological footprint of digital currencies is theoretically determined by their market value.

“Unless bitcoin collapses further, there is no reason to expect a decrease in environmental impact,” said Alex de Vries, a data scientist at the Dutch central bank and founder of Digiconomist, which tracks the sustainability of cryptocurrency projects.

His research shows that while the increase in the price of cryptocurrency encourages the allocation of more computer capacity to it – increase carbon emissions – This capacity takes a long time to disappear after depreciation, so the effect of climate persists.

Cryptocurrencies work by validating their transactions with a large number of “miners”, who use their computers to solve very complex math problems in exchange for the chance to get tokens as a reward, in an energy-intensive process.

De Vries estimates that the bitcoin network uses about 204 TWh of electricity per year, roughly the same as Thailand’s energy consumption and above that of all but 23 sovereign nations.

Other cryptocurrencies add to this footprint: Ethereum, the token that supports the NFT boom and the “decentralized finance” sector, has an annual footprint of around 104 TWh (Kazakhstan equivalent, more than all but 34 countries), while Dogecoin, which is Slender icon. Bitcoin purchases famous for their positive attitude to their community consume an estimated 4 TWh per year.

These numbers have barely changed over the past month despite the $1 trillion wiped out from the crypto sector, and other measures of the amount of processing power devoted to “mining” show a similarly small drop.

All major cryptocurrencies use electrical power in an approximate ratio to the price of the token as this determines the amount of reward given to miners. For bitcoin, for example, the reward for successful mining is 6.25 bitcoins every 10 minutes – currently around $210,000.

The higher the reward value, the more energy it would be worth to use to try to win it, ensuring that as the price of bitcoin rose from $8,000 in October 2019 to $60,000 two years later, energy use in the sector rose as well, from 73TWh to its current all-time high.

But while the increase in the price of cryptocurrency is rapidly increasing carbon emissions in this sector, the crash that occurred last month does not lead to the opposite. “This could potentially stop the environmental impact from rising any further, but the $25,200 bitcoin price is enough to maintain annual electricity consumption of 184 TWh,” de Vries said.

Question and Answer

What is a stablecoin?

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A stablecoin, as the name implies, is a type of cryptocurrency that is supposed to have a fixed value, such as one dollar per token. How they achieve this varies: the largest banks, such as Tether and USD Coin, are physical banks. They have large reserves of cash, liquid assets, and other investments, and they simply use these reserves to maintain a stable price.

Others, known as “algorithmic stablecoins,” try to do the same but without any reserves. They have been criticized as being actively supported by Ponzi schemes, as they require constant cash flows to ensure they do not collapse.

Stablecoins are an important part of the cryptocurrency ecosystem. It provides a safer place for investors to store capital without going through the hassle of fully cashing out, and allows assets to be denominated in traditional currency, rather than other highly volatile tokens.

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That’s because the cost of cryptocurrency mining falls into two main areas: buying hardware, and paying for electricity. When prices rise, miners buy new computers — expensive graphics cards for ethereum, or purpose-built “platforms” for bitcoin — but once they are already set up, it is only worth turning them off when the cost of electricity alone is higher than the expected revenue.

in paper Published in Goal last yearDe Vries estimated that a massive crash in the price of bitcoin, as low as $8,000, would be required to reduce total mining emissions — and even then, it could sustain energy consumption of up to 60 TWh annually.

The ongoing turmoil in the cryptocurrency markets means that the sector may face further downturn. On Wednesday morning, Tether, a stablecoin that effectively acts as a bank, paid another $1.5 billion to depositors pulling cash from its vaults. last week , Bank running slow It has seen it withdraw $9 billion from its reserves, more than 10 percent of its total market value, and more than double the available cash it announced at the start of the year.

Andreessen Horowitz, a prominent venture capital firm and one of the major financial backers of the cryptocurrency sector, said on Tuesday That we may be entering a ‘crypto winter’echoing a warning from Coinbase CEO Brian Armstrong that valuations may be low for some time.

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