Many people consider virtual money to be a good and fair alternative to the traditional financial system. On the other hand, there is a lot of criticism of Bitcoin and co. because of their questionable carbon footprint. Worldwide, the generation of the cryptocurrency Bitcoin consumes more electricity than many large countries such as Pakistan and therefore has a negative impact on the environment and climate. But how sustainable is the digital currency really?
Bitcoin - How the digital currency works
Bitcoin was conceived in 2008 and is a digital currency, but also a payment system. The monetary system works decentrally without banks as a coordinating body. Instead, transactions are carried out using the blockchain, a large database consisting of a growing number of data blocks. The special thing about cryptocurrencies is that transactions between people who do not know each other can take place completely securely. In order to generate cryptocurrencies such as Bitcoin, a large, globally connected data network is required. In Bitcoin mining, new Bitcoin is generated and added to the Bitcoin blockchain. This is done by Bitcoin miners who use special hardware and software and receive a reward for their computing power – the so-called block reward – which in turn is paid out in Bitcoin.
Environmental footprint of the crypto industry
It takes high computing power and enormous amounts of energy to verify each transaction and generate a block of data that is added to this blockchain. According to studies, two thirds of mining electricity in 2020 and 2021 came from fossil energy sources such as coal and natural gas. Only around 16% of electricity demand was covered by hydropower as a renewable energy source. According to research, digital currency causes more climate damage than global beef production.
In addition to high energy consumption, e-waste is also one of the biggest sustainability challenges. Older equipment is being replaced by ever newer and more efficient mining hardware, which leads to ever greater e-waste. Furthermore, Bitcoin’s water consumption is enormous and the digital currency could further exacerbate the shortage of drinking water in some arid regions of the world.
Sustainable measures
To counteract this problem, Bitcoin mining facilities could be built in regions where it is not so hot. Another measure for more sustainability in the crypto industry would be to use more energy from renewable sources, such as wind or solar power.