Talk of cryptocurrency boomed during 2020 when the COVID-19 pandemic shook the economies of countries across the globe. The value of many currencies between 2020 and 2021 took a hit, and many countries are still recovering from the economic impact.
Since the pandemic, the number of cryptocurrencies available has nearly doubled. The crypto market has gained attention from economists, investors, and the general public for its unorthodox approach to banking that does not rely on a central government or monetary superpower.
The increase in cryptocurrency holders across the globe has begged the question: is cryptocurrency a sustainable banking system?
What is Cryptocurrency, and How Does it Work?
Cryptocurrency, referred to as crypto, is any form of digital currency that uses cryptography to secure transactions. All cryptocurrencies operate under a decentralized system without a need for government or bank authorizations. The blockchain, where crypto is held, is a public, decentralized ledger used to generate and monitor cryptocurrency and transactions.
Buyers and sellers of cryptocurrencies can use their profits to purchase goods and are eligible to be taxed on any capital gains. Cryptocurrency is generally considered a high-risk, high-reward investment due to its decentralization and lack of regulation.
Bitcoin was the first cryptocurrency made available, debuting in 2009. Today, there are over 12,000 cryptocurrencies, with an estimated 1,000 new currencies added to the market each month.
What Makes a Currency Sustainable?
Generally speaking, the sustainability of a currency largely depends on the resources needed to produce it. Resources used in the production of currencies (both physical and digital) include electricity and fuels, water, textiles, metals, and chemical agents.
A sustainable currency would utilize as many reclaimable, recyclable, and/or reusable materials as possible, and limit consumption of energy during production. In addition, a sustainable currency would aim to reduce or halt environmental impacts during production for water quality, soil health, air quality, and wildlife. Should currency enter the environment, it would pose little to no risk to the environment or human health to be deemed sustainable.
Developing a perfectly sustainable and circular currency has yet to be done. However, many countries have periodically adjusted how they create their currency to reduce the need for virgin materials and to reduce energy expenditure.
Is Cryptocurrency Sustainable?
Cryptocurrency is attractive as a sustainable model since it does not require production or distribution of physical banknotes, coins, or other physical displays of monetary value. Meaning, it does not require virgin or reclaimable materials like cotton, linen, polymers, or printing inks. However, in terms of energy and technology required to maintain and grow the crypto market, the costs and impacts are substantial.
The Argument Against Cryptocurrency For The Environment
Bitcoin, arguably the most profitable and widely known cryptocurrency, has been under fire after a 2022 press release from The White House, in the United States. The report detailed the energy consumption of the entire cryptocurrency grid, which uses electricity to “mine” crypto coins. From 2018 to 2022, the grid used 120 to 240 billion kilowatt-hours annually, which exceeded the average annual usage of Australia and Argentina.
Of the energy used from the crypto-grid, an estimated 60-70% was used specifically for Bitcoin mining and 20% for Ethereum, another leading cryptocurrency. Cryptocurrency mining is the digital process of generating crypto coins and involves a complex network of computer systems across the globe. While some governments, like the United States (U.S.), are in favor of progressive digital currencies, there have been concerns presented that the carbon footprint of blockchains works against carbon neutrality goals set by the U.S.
To put it into perspective, the global cryptocurrency market generated a similar carbon dioxide output to all trains using diesel fuel across the United States in the same year.
Since the entire cryptocurrency market relies on computers and data software, concerns over electronic waste, noise pollution, and direct or indirect water and air quality impacts have also been presented.
Could Crypto Go Green?
Cryptocurrency founders are beginning to feel the heat from governments threatening to execute legislation barring crypto mining over environmental and energy concerns. Some emerging cryptocurrencies, like Chia (XCH), aim to change the market to become more carbon-neutral.
Either by elective participation or forced by law, the cryptocurrency market could become a sustainable banking system in the future. By using electricity generated by renewable sources, like solar and wind, the cryptocurrency market could see a dramatic carbon footprint decline, using just 1% of the energy consumed today.
Cryptocurrency is digital or virtual currency created and monitored by the blockchain; a public, decentralized transaction system.
A fully sustainable currency has yet to be made in modern society. However, many countries have adjusted the way they create currency to be more efficient.
Cryptocurrency as a whole is not a sustainable market. However, some governments and emerging crypto producers are presenting solutions, like crypto produced using renewable energy sources.