The future of currency! Central bank slayer! The harbinger of a decentralised world! These are some of the radical visions associated with the rise of cryptocurrencies. With more than 3,000 different coins being traded on exchanges, and billions of units mined already, it seems that the financial world is set to change faster than we can imagine.
But, a new world order brings its own set of challenges, especially at a time when humankind is trying to reduce its energy consumption to avert a doomsday that scientists have been warning for long. Cryptocurrencies consume energy like no other thing in this world. In fact, many believe that if the world has to meet its target of net zero carbon emissions by 2070, we must control the rise of cryptocurrencies.
The naysayers have a point. Bitcoin, the most expensive and famous cryptocurrency in the world, has a monstrously high carbon footprint. According to Thinkthrough Consulting, a Delhi-based sustainability think tank, the Bitcoin network consumed 131.8 TWh (terawatt-hours) of power in 2020 to execute the algorithms that power its mining operations. This is equivalent to the power consumed by the whole of Argentina. The amount of energy consumed by one transaction of a Bitcoin can power an average American home for 53 days!
This is not all the harm that Bitcoins cause to the environment. Bitcoin mining requires computers with high processing power which have a lifespan of just about two years. Each year Bitcoin economy contributes 32.04 kilotonnes of e-waste, which is equivalent to the annual e-waste produced in the Netherlands. This data makes experts claim that Bitcoin is neither good for air nor for land.
It was this realisation that forced Tesla founder Elon Musk to stop accepting Bitcoins for selling Tesla cars. A businessman whose fortunes are built on the pitch of making the world greener and better could not ignore the criticism from environmentalists who accused Musk of promoting a currency that had the potential of burning down the earth.
Crypto Ban and the India Question
Governments across the world are realising this dark side of the crypto economy. Unable to find a solution to the immediate threat cryptos pose to the environment, they have started banning crypto mining. Kosovo recently banned crypto mining within its geographical boundaries to avoid the looming power crisis the country was facing due to rising energy consumption by crypto miners. It witnessed power cuts in December due to shortage of coal and rising energy import bill. Prices of coal as well as gasoline have skyrocketed over the last few months, affecting power cuts in many countries around the world.
Kosovo is not alone. An energy-secured country like Iran, too, banned crypto mining in 2021 for the same reason. Between January and April 2021, the gulf nation accounted for around 4.5% of all global crypto mining, leading to power cuts in the country. Around four dozen countries have banned cryptocurrencies so far, and quite a few of them have cited the high energy consumption as a reason behind the ban.
India’s per capita power consumption was 1,208 kilowatt-hour in 2019-20, which is less than half the world average. India not only needs to provide more energy to improve the quality of life of its people but also meet the carbon footprint target promised in the recently concluded COP26 negotiations. India committed to reducing its carbon intensity to 45% by 2030. This means that India cannot afford to allow anything that leads to energy disparity.
“Cryptocurrencies are high energy consuming. India’s energy demand is going to double or triple in the future, and currently millions of Indians live in energy poverty. The country has limited resources to produce electricity, be it solar or other forms of energy fuel. Against this backdrop, whether India can join the cryptocurrency race is a questionable proposition,” said Sandeep Pai, an energy economist with the global think tank CSIS Energy.
India had banned the import of application-specific integrated circuit machines, known as ASIC miners, in 2107 to curb crypto mining in the country. The crypto community has been lobbying hard to resume the import of ASCI machines for developing the crypto-mining ecosystem in the country, but the government has been wary of the decision, given the impact it will have on India’s energy consumption.
Quest for Green Cryptos
Nothing can stop an idea whose time has come, not even the threat of a doomsday, and definitely not when the idea has technology built into it. Experts believe that while Bitcoin and Ethereum are energy-guzzling cryptos, there are other coins that consume far less energy. “People are investing time and resources in finding solutions to the sustainability problem associated with crypto. There are a number of cryptocurrencies that show the way forward,” said Parul Soni, global managing partner, Thinkthrough Consulting.
Soni gives the example of cryptocurrency Algorand, which does not involve mining. “This currency was designed to be energy efficient and has committed to offsetting any emission gaps to reduce its environmental impact further,” he says.
There are many other cryptocurrencies that claim to be solving the energy problem associated with the sector. Tron, IOTA, Signum and Harmony are many cryptocurrency projects that have devised ways to be more energy efficient.
In response to the growing criticism of Bitcoin and other proof-of-work cryptocurrencies, the industry has come together to address the issue. Many stakeholders got together in April 2021 to float the Crypto Climate Accord in order to find a solution to the problem. The private sector partnership has a mission to decarbonise the cryptocurrency and blockchain industry by making crypto mining green. The United Nations Framework Convention on Climate Change Climate Champions, has also lent support to the CCA initiative.
“Crypto is the future of the world. There is no doubt that currently it consumes a huge amount of energy, but as the industry progresses, it will become energy efficient. Already, miners are shifting to renewable energy sources to make their footprint carbon neutral. The money that is involved in the ecosystem will also make the sector invest in green fuel across the world,” said Mukesh Kwatra, a green energy expert.
Countries like India may be treading with caution, but there are others that see opportunity in the business. Bhutan, which is a carbon-negative country, is looking to expand its share in the crypto mining sector. India, however, can take heart in the fact that crypto mining is still not big enough to cause an energy crisis.
(With input from Harsh Kumar)
