Will Crypto Crash Reduce the Impact on the Environment?

Published on: 20 May 2022 05:05 PM
by KnowESG

The crypto crash will not reduce the impact that cryptocurrencies have on the environment, despite the fact that it is their market value that is responsible for the carbon footprint.

The increase in the prices of cryptocurrencies is the reason why more computer capacity is needed, which leads to more carbon emissions.

Miners are responsible for keeping the blockchain safe, and to do so, they use their own computers to solve complex math problems. This will allow them to have access to the blockchain and then get remunerated in tokens. However, it was this work that resulted in severe climate consequences. Finally, even if the value of the cryptocurrencies were to decline, a long time is needed for that capacity to fade out.

"It likely stops the environmental impact from going up any further" said de Vries but a bitcoin price of $25,200 is sufficient to sustain an annual electricity consumption of 184TWh.

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

According to De Vries, 204 terrawatt-hours (TWh) of electricity are consumed each year, which is comparable to the energy usage of Thailand and above that of all but 23 sovereign nations. Other cryptocurrencies like Ethereum, the blockchain where the famous NFT phenomenon is taking place, consumes around 104TWh (equivalent to Kazakhstan, more than all but 34 nations) and even Dogecoin needs approximately 4TWh annually.

The electrical power is proportional to the price of the token and is necessary to determine the rewards of the miners. For Bitcoin, the payout for successful mining is 6.25 bitcoin every 10 minutes or around $210,000 at present.

In a paper from the journal Joule last year, De Vries estimated that in order to substantially lower the total emissions of mining, there is a need for bitcoin’s value to drop to $8,000. Even so, it might support an annual energy usage of up to 60TWh.

The tether stablecoin, which functions as a bank, was also affected by the crash. On Wednesday, there was a payout of $1.5bn to depositors who kept withdrawing their cash. The amount of money withdrawn reached $9bn which represents more than 10% of its total market cap. The loss also concerned more than twice the cash-on-hand it declared it had at the beginning of the year.

Andreessen Horowitz, a famous venture capital company and one of the cryptocurrency industry's primary financial backers, suggested that we may be experiencing a "crypto winter" after Coinbase’s CEO announced that valuations might remain down for some time.

Source : The Guardian