Updated: Oct 15, 2021
In recent years, the creation of a new payment method, cryptocurrency, has drastically risen in popularity. Initially viewed as an impracticable way to make monetary transactions, cryptocurrency is now seen as the future of finance. Bitcoin, the first cryptocurrency made, has exploded in value far more than its competitors and is primed to dominate other major currencies in the near future. Although its value has risen, the environmental concerns that Bitcoin has raised have produced questions over the viability of the cryptocurrency.
What is Bitcoin?
Satoshi Nakamoto, the name used by the pseudonymous creator behind Bitcoin, created the cryptocurrency in 2008. Bitcoin allows the capabilities to buy, sell and exchange directly without the need of an intermediary such as a bank. Bitcoin’s decentralized authority, unlike existing government-issued currencies, offers the promise of lower transaction fees. Since the cryptocurrency went public in 2009, its value has skyrocketed. Once sold at $1 in February 2011, each bitcoin is now worth over $60,000.
As of today, there are approximately 18 million bitcoins that are in circulation. With the entire supply limited to a maximum of 21 million coins, many have predicted the value of bitcoin to consistently rise due to the rise in demand of the cryptocurrency. This limited supply and the hefty value have given way to a new practice called bitcoin mining. Bitcoin mining is the process in which new coins are brought into circulation through the use of sophisticated computers that solve complex computational math problems in order to prevent stealing and counterfeiting bitcoins. Although bitcoin mining has played an important part in cryptocurrency’s meteoric rise, it has also led to serious environmental concerns.
Drawbacks of Bitcoin Mining
With bitcoin, every transaction that takes place is recorded on a blockchain, a specific database that stores data in blocks that are chained together. Since Bitcoin uses a decentralized authority, the blockchain is then distributed amongst thousands of computers, which each independently verify the transaction. This complex process, which entails Bitcoin mining, is not efficient.
Bitcoin mining uses tremendous amounts of energy. According to the Bitcoin Energy Consumption Index, executing a single Bitcoin transaction requires the same amount of energy that an average U.S home consumes over a 3-week span. Yearly, Bitcoin uses nearly 37 million metric tons of carbon emissions each year, a number larger than the entire carbon output of many countries around the world. Consequently, Bitcoin mining fails to meet ethical environmental standards and aids in climate change.
In order to deter others from Bitcoin mining, disincentivizing mining is needed. As of now, service fees from bitcoin transactions are rather small compared to the value being exchanged. If we were to implement larger transaction fees when converting bitcoin into government-regulated currency, many bitcoin miners would be dissuaded from continuing to mine.
Decreasing the amount of material needed for bitcoin mining could also play a part in deterring bitcoin mining. Though there are companies that specialize in equipment such as Bitmain, MicroBT, and Canaan, the number is quite a few. If the government were to create regulations that would make buying this specific equipment unattractive or even restrict the output of the equipment, many miners wouldn’t be able to have access to the tools. Although Bitcoin continues to thrive today, it has many associated risks along it. Creating governmental regulations is mandatory in order to keep Bitcoin as a viable financial tool for the future and to address the environmental risks it poses.