Despite issues of greenhouse gases produced in Bitcoin mining, the United Nations believes that cryptocurrencies and blockchain technology could play an important role in sustainable development.
In recent months, many people around the world have raised concerns about Bitcoin mining, an energy-intensive process that involves using powerful computers round the clock to solve complex mathematical problems. Citing environmental concerns, Tesla CEO Elon Musk announced that his company would no longer accept Bitcoin. This led to a collapse in Bitcoin’s market value, which was earlier skyrocketing on the back of confidence shown by the same tech billionaire.
Tim Berners-Lee, who wrote the source code of the World Wide Web, described Bitcoin mining as “one of the most fundamentally pointless ways of using energy.”
Why does the Bitcoin network require a staggering amount of energy?
Bitcoin is a decentralised digital currency that has no physical existence. New Bitcoins are brought into circulation as a reward for a process known as ‘mining’. The proof of transaction in cryptocurrencies is not stored in a central database, rather stored in a block and recorded by a distributed network of miners.
The miners are rewarded with new Bitcoins for each block they mine successfully. Recording a block involves solving mathematical problems which get more complex with each mining. Over the years, the algorithms kept getting longer and more complex, requiring special computers with colossal processing powers to record the block.
Naturally, such processes are energy-extensive and often rely on electricity generated with fossil fuels, particularly coal. As per an estimate by the University of Cambridge, Bitcoin mining consumes more than 178 (TWh) annually.
Also Read | Tesla suspends Bitcoin use. Here’s how mining cryptocurrency affects the climate
What does the UN say?
The UN experts believe that cryptocurrencies could actually improve their stewardship of the environment. In a report last month, the United Nations said that transparency is one of the most useful aspects of cryptocurrencies and can provide a trusted record of transactions, especially in countries with weak institutions and high levels of corruption. The World Food Programme (WFP) has found that blockchain technology can help ensure that cash gets to those who need it most.
It could be also helpful in protecting the environment since it has been used as a tool to eliminate illegal fishing in the tuna industry. The UN experts believe that the technology could provide a transparent way to show how countries around the world are taking action to reduce their impact on the climate.
On the issue of power consumption, the UN noted that many players in the industry are working to address it by switching to a different method to verify transactions. According to the report, the Ethereum Foundation has said that the energy cost of each transaction could be cut by 99.95% by switching to a different method called Proof of Stake, or PoS.