The climate change conversation has increased in volume amid a growing understanding – and concern – of the damaging impact individuals, governments, and businesses have on the environment. Empowered by the internet, today’s ethically conscious society demands products and services that put people and the planet ahead of profits. But there is an environmental blindspot when it comes to a revolutionary – and disruptive – addition to the payments landscape: cryptocurrency. How does it compare to the more obvious impact that traditional, tangible cash has on the environment?
Environmental impact of cryptocurrency
Cryptocurrency is a type of digital currency whereby transactions are verified and records maintained by a decentralised system using cryptography, rather than by a centralised authority like a central bank – as is the case with cash. Over the past decade, the demand for cryptocurrencies has grown exponentially: by 2022, the total cryptocurrency market cap reached over three trillion dollars and the price for Bitcoin – the most popular cryptocurrency – was almost double the amount 12 months earlier.
The explosion in price for these digital currencies has overshadowed their potential collateral environmental impact amid a clamour the world over to cash in on them. Cryptocurrencies rely on energy-intensive activities for each transaction and for “mining” new coins – some require very little energy, while others, like Bitcoin, require huge amounts.
Bitcoin mining
Bitcoin mining is the process by which new Bitcoins are created and transactions are verified – it relies on groups of computers, around the world, to run the complex maths equations required to do so. These Bitcoin farms depend on specialised hardware that conducts energy-intensive mining operations, which can consume substantial amounts of electricity. In many cases, this energy is sourced from fossil fuels, contributing to carbon emissions and environmental concerns.
Studies estimate that Bitcoin mining uses more power globally per year than most countries, including the Philippines, Venezuela, and Finland. In total, Bitcoin mining uses 91 terawatt-hours of electricity each year, which is roughly 0.5% of the world’s electricity consumption. That’s more electricity than Finland – a nation of about 5.5 million – consumes annually and seven times more than Google.
Until 2021, most Bitcoin farms were located in coal-intensive regions of China – a relatively cheap energy source that not only stoked profitability but carbon dioxide emissions too. The Chinese government has cracked down on Bitcoin mining, causing these farms to up sticks and seek other locations with cheap fossil fuel energy sources – such as Kazakhstan.
Meanwhile, Bitcoin farms located in countries that promote the use of green-energy sources – such as the Scandinavian nations – have significantly lower, or even neutral, carbon footprints. However, renewable energy can be limited by seasonal availability, potentially dissuading miners from pursuing green options in favour of reliable fossil fuel-based energy.
Sustainable initiatives
It’s important to note that not all cryptocurrencies have the same environmental impact. While Bitcoin relies on energy-intensive proof-of-work algorithms, others, such as Ethereum – the second largest blockchain behind Bitcoin – are transitioning to more energy-efficient proof-of-stake mechanisms. This requires users to hold a certain amount of their cryptocurrency, reducing the need for extensive computational power. According to Ethereum Foundation researchers, this reduces energy usage by more than 99% compared to Bitcoin’s system.
There is, however, a counterargument from some corners of the crypto community who claim that crypto mining has several environmental benefits – from encouraging a new sustainably minded market that will embrace renewable projects to transforming the energy grid in the long run and absorbing excess energy that would have been otherwise wasted.
Environmental impact of cash
At the other end of the spectrum is good old traditional cash. The impact of cash on the environment is a complex issue that’s influenced by various aspects of its production, distribution, usage, and disposal:
Paper production
Cash is predominantly made from paper, which requires intensive harvesting of trees. This process can lead to deforestation and habitat loss if not managed sustainably. Additionally, paper production consumes significant amounts of water, energy, and chemicals, contributing to pollution and carbon emissions.
Energy consumption
Cash manufacturing involves energy-intensive processes, including paper production, printing, cutting, and packaging. These operations typically rely on fossil fuels, which contribute to greenhouse gas emissions and climate change.
Transportation
Cash needs to be transported from printing facilities to banks, cash points, and businesses. This process requires using vehicles, which contribute to carbon emissions and air pollution.
Waste generation
Cash has a finite lifespan due to wear and tear through use over time, leading to its withdrawal from circulation and replacement with new notes. Discarded cash is typically destroyed through shredding or incineration, generating waste and emissions.
Security measures
Cash requires security features, such as holograms, magnetic strips, and watermarks, to prevent counterfeiting. These features often involve using raw materials and technologies with adverse environmental impacts, including plastics and chemicals.
Ecosystem impacts
The extraction of raw materials used in cash production, such as metals for coins, can have ecological consequences, including habitat disruption and pollution associated with mining operations.
Final words
As societies increasingly embrace digital payment methods, the use of cash is declining. Electronic transactions, such as credit/debit cards, mobile payments, and online banking, offer environmental benefits by reducing paper usage, transportation emissions, and energy consumption associated with cash handling – although they are not without their challenges.
The environmental impact of cash is relative to alternative payment methods and can vary based on local factors, such as the availability of renewable energy sources and the efficiency of cash management systems. Transitioning to more sustainable practices, such as using recycled materials in cash production, implementing eco-efficient transportation networks, and promoting digital payment options, can mitigate the environmental footprint of cash.
Finally, from a reliance on Bitcoin farms to a reliance on raw materials, the environmental impact of cryptocurrency and cash are different, but equally significant.
Tom Vicary
Author
