The industrial revolution is often romanticised. We think of the early 19th century as a time of innovation and unlocking new ways of generating power, advancing methods of manufacturing, or improvements in metallurgy for the betterment of the world we live in today. We usually fail to think of the negative aspects of these transitions in human history. Just as the industrial revolution impacted the environment, digital currency also comes with consequences that are often overlooked or unconsidered.
This is the 21st century though, and today we are romantic about innovation and iteration. The challenges of cryptocurrency are not a losing battle. Learn more about the positives and the negatives.
Enter Cryptocurrency Mining
The industrial revolution was the start of the mining era. The new gold rush is for cryptocurrency mining. Instead of grabbing a hard hat, head torch, and a pick axe, the new miners are rushing for computers with plenty of processing power and enough electricity to power half a small country to run them. According to a White House Report, crypto miners are using more power than nations such as Australia to mine cryptocurrency.
For cryptocurrency to be validated, complex algorithms need to be solved at which point the miner is rewarded with a unit of currency; Bitcoin for example. As long as the value of the cryptocurrency is high enough to justify the time and energy associated with running these computers to generate this reward, entities will continue their mining operations to generate a profit.
Since the processing is power hungry for generating cryptocurrency and mining projects are generally short-term endeavours, in most cases cryptocurrency miners resort to energy sources that are short-term, in some extreme cases purchasing power plants run on fossil fuels to facilitate the power requirements.
Alternatives to Cryptocurrency Mining
Digital currency doesn’t necessitate high processing power. The introduction of Bitcoin using algorithms to validate crypto has become known as ‘proof of work’ validation. There is also ‘proof of stake’ validation which requires less processing power and a more community-driven alternative. Proof of stake currencies such as Ethereum provide for an environmentally friendly alternative. While unfortunate for the cryptocurrency miner, this relatively new alternative to proof of work has disrupted the cryptocurrency industry, reducing associated energy consumption by 99.9% (Forbes). The currency in proof of stake is validated by peers; creating value from the community invested in it.
Lawmakers Make a Stand
In some cases, Cryptominers have purchased entire power stations run on fossil fuels to provide power to crypto mining operations. In New York, lawmakers legislated preference to proof of work crypto mining operations that used renewable energy instead of relying on fossil fuels for processing. While lawmakers continue to navigate the challenges of legislating digital currencies, it seems that some are still able to identify ways to encourage positive governance when it comes to the environment.
Crypto and the Silver Lining
Most discussion regarding crypto mining and proof of work crypto focuses on Bitcoin and its massive impact on the environment. Bitcoin attracts the most attention from mainstream media and the largest amount of hype on account of its high value. There are many crypto projects focused on climate and positive environmental outcomes. Given enough time, the shifting demands of participants in the digital economy will most likely progress beyond Bitcoin. While digital currency often falls outside of regulation, power is something that can be regulated and eventually the cost of validation will exceed the reward, decreasing demand on the currency and therefore the value.
History Repeating
Cryptocurrency operating on a proof of work validation is not great for the environment, but society has been here before. Every fossil fuel mining operation since the industrial revolution has been financed by the machinations of traditional regulated finance. Most consumer products we enjoy also reflect a negative environmental impact that is not seen by the end user. Just as we have switched from plastic straws to cardboard, from disposable plastic for groceries to reusable shopping bags, and adopted a range of renewable materials in all facets of life; so too will we adopt our crypto preferences to reflect this new age of progress.
The evolution of a financial industry does not happen in one giant step. Progress and innovation are the sum of a series of small steps toward a desired state. While some digital currencies produce a negative environmental impact, the disruption to traditional institutions may be beneficial. It is no coincidence that many of the bodies identifying the environmental impact of digital currency are also the same institutions interested in preserving the status quo.
Final Thoughts
Digital currency operating on a proof of work validation is not great for the environment. The good news is there are alternatives. Between conscientious investors, government regulation, and cryptocurrency projects for environmental impact, investors will find a way to make digital currency environmentally friendly. In the short term, an investor should carefully navigate the transition space balancing these risks and benefits along with other factors that affect value; whether that be to the economic or environmental bottom line.
Tagged in: Bitcoin, cryptocurrency