Cryptocurrency, and Bitcoin in particular, is always in the news nowadays and is becoming a significant factor in modern financial markets. Unsurprisingly, the subject of regulating cryptocurrency in one form or another has become an important concern. China is already restricting its use. Central banks around the world are looking at decentralized cryptocurrencies to assess their potential impact on financial stability, or to even issue their own digital currencies. Securities and Exchange Commission Chair Gary GenslerGary GenslerOn the Money — Student borrowers stare down rising prices Biden faces time crunch to pick financial watchdogs Washington grapples with how to expand crypto oversight MORE described crypto trading as the “Wild West” recently calling for Congress to create a protection regime for crypto investors. A major impasse for the critical infrastructure bill was the issue of taxing crypto transactions. Others have proposed that “stablecoins” be regulated like banks.
Unsurprisingly, the crypto industry has developed a formidable lobbying force to ward off further regulation. Regulation is totally antithetical to the very idea of decentralized cryptocurrency.
Yet, little focus has gone to the environmental dangers of cryptocurrency. Yes, Elon MuskElon Reeve MuskOn The Money — Vaccine-or-test mandate for businesses nixed Hispanics sour on Biden and Democrats' agenda as midterms loom Can our nation afford higher interest rates with the current national debt? MORE attracted the usual hype when he first announced that Tesla would accept Bitcoin — and then stated (rather belatedly given the science) that since he learned of the environmental damage inflicted by cryptocurrencies he would reverse that decision.
Cryptocurrency’s impact on the environment is indeed very serious — possibly the single most important policy factor against its growth.
Cryptocurrencies, Bitcoin and Ethereum in particular, are so damaging to the environment that they threaten to reverse any gains achieved through the transition to electric vehicles and the reduction in fossil fuels use. Much of this consumption and output derives from the energy and processing intensive “mining” of Bitcoin and “proofs of work.” Even now the total Bitcoin carbon footprint exceeds the total emission reductions of electric vehicles. According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin already consumes more energy than the whole of Argentina (pop. 45 million).
Digiconomist’s Bitcoin Energy Consumption Index estimates that Bitcoin and Ethereum together consume the same amount of power as Ukraine and Israel, totaling 52 million people. The carbon footprint of a single Bitcoin transactions equates to nearly 2 million Visa transactions, or 135,229 hours of watching YouTube! A single Ethereum transaction consumes the equivalent power used by an average U.S. household over 4.55 days. Furthermore, the energy and carbon footprints of both these and other cryptocurrencies are projected to grow exponentially in volume as speculation, hype and criminality continue to drive volume. Already, total crypto energy consumption “is roughly comparable to the carbon emissions produced by the metropolitan area of London,” according to The Gaurdian.
Apart from these staggering energy consumption statistics, crypto is also intensifying competition for chips, for which there is already a global shortage impeding the manufacture of alternative energy devices, including EVs. Crypto has already grown exponentially. Further growth will only broaden its carbon footprint.
Given the daunting targets for carbon reduction that we face in the U.S. and globally, this development should concern everyone. If there were offsetting gains with crypto, one might justify it on a cost-benefit basis, as we do with EVs (which inflict some damage but less overall than combustion engines). Yet, there are no real gains.
There are many classes of crypto adventurers: libertarian idealists who dream of freedom from sovereign monetary control; hardware and software players “mining” the stuff for reward; traders who derive revenue from crypto transactions; speculators who ride the wild volatility of crypto; crypto “wallet” raiders; and criminals who exploit the relative degree of anonymity crypto offers as ransomware. Despite grand statements about reducing transaction costs and liberation from “fiat” money, none of the legitimate players have made a case for crypto contributions to general welfare. Beyond rhetoric they have not even seriously attempted to. Instead, they have relied on the naivete of lawmakers, regulators and journalists.
Well-informed commentators have described crypto as a “giant bubble.” Yet, regulators continue to display timidity in addressing the subject. While the Biden administration urges the auto industry to transition to 50 percent EVs by 2030, we recklessly allow crypto to escalate at huge current and potential cost to our carbon footprint.
China has at least taken one step in the direction of connecting crypto to climate change concerns: It has banned crypto mining. This activity will only move elsewhere. Legislators and policymakers should inform themselves now and act soon to stop the counterproductive growth of this industry, no matter how potent their lobbying forces have become. If they do not, even as the threat posed by global warming enters “code red” according to the Intergovernmental Panel on Climate Change we will find ourselves in yet another situation where an entrenched industry prevents us from advancing the common good and tackling climate change.
Lawrence G. Baxter is the David T. Zhang professor of the practice of law at Duke University where he also directs the Global Financial Markets Center.