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Carbon Footprints of Cryptocurrencies

  Feb 16, 2022

Carbon Footprints of Cryptocurrencies

Q Why is it in News ?

A Bitcoin prices are rising these days and so will be its mining. As cryptocurrency will become mainstream, its carbon footprint cannot be ignored.

Q What are Cryptocurrencies?

A The 2019 Cryptocurrency Bill defined cryptocurrency as any information, code, number or token, generated through cryptographic means or otherwise, which has a digital representation of value and has utility in business activity, or acts as a store of value or a unit of account. According to professionals a system must need these six points to be called a cryptocurrency system:

  • The system does not require a central authority; its state is maintained through distributed consensus.
  • The system keeps an overview of cryptocurrency units and their ownership.
  • The system defines whether new cryptocurrency units can be created. If new cryptocurrency units can be created, the system defines the circumstances of their origin and how to determine the ownership of these new units.
  • Ownership of cryptocurrency units can be proved exclusively cryptographically.
  • The system allows transactions to be performed in which ownership of the cryptographic units is changed. A transaction statement can only be issued by an entity proving the current ownership of these units.
  • If two different instructions for changing the ownership of the same cryptographic units are simultaneously entered, the system performs at most one of them.

Q How big is Global crypto market ?

  • In 2019, the global cryptocurrency market was approximately $793 million.
  • It’s now expected to reach nearly $5.2 billion by 2026, according to a report by the market research organization Facts and Factors.
  • In just one year—between July 2020 and June 2021—the global adoption of cryptocurrency surged by more than 880 percent.

Q What are Carbon footprints of Bitcoins ?

  • Increasing popularity of cryptocurrency has environmentalists on edge, as the digital “mining” of it creates a massive carbon footprint due to the staggering amount of energy it requires.
  • A/c to the Bitcoin Energy Consumption Index, the carbon footprint of Bitcoin is equivalent to that of New Zealand.
  • Both emit nearly 37 megatons of carbon dioxide into the atmosphere every year.

Q What is Mining?

  • Mining is a process in which computational puzzles are solved in order to verify transactions between users, which are then added to the blockchain.
  • In simpler terms, the works are created, or “minted,” through a process called proof-of-work (PoW), which establishes its unique identity.

Q How do cryptocurrencies create such a footprint?

  • Unlike mainstream traditional currencies, bitcoin is virtual and not made from paper or plastic, or even metal.
  • Bitcoin is virtual but power-hungry as it is created using high-powered computers around the globe.
  • Bitcoin is created when high-powered computers compete against other machines to solve complex mathematical puzzles.
  • This is an energy-intensive process that often relies on fossil fuels, particularly coal, the dirtiest of them all.

Q What is the conclusion ?

  • What this means is that, unlike traditional currency or gold, Bitcoin is not solely a settlement layer, not solely a store of value, and not solely a medium of exchange.
  • This makes Bitcoin’s relative energy consumption productive in comparison to comparative sectors, given its robust potential uses.
  • The promise of such an endeavor offers hope for a more sustainable cryptocurrency future.
  • Whether this will make much difference to the climate crisis in light of government and industrial inaction remains to be seen.