Researchers estimate that Bitcoin's market share causes more climate damage than cattle production and nearly as much as crude oil, based on its market share.
According to the new three-pronged analysis, Bitcoin is potentially unsustainable and could cause serious social and environmental problems.
Bitcoin's CO2-equivalent greenhouse gas emissions increased by 113 tons between 2016 and 2021.
The US$11,315 in climate damages caused by each Bitcoin mined in 2021 totalled about US$3.7 billion.
Digital currency mining was compared with other energy-consuming activities.
During the five-year study period, researchers found that climate damages averaged 35 percent of Bitcoin's market value. That means 35 cents of a US dollar of Bitcoin is climate damage.
In terms of climate damages, Bitcoin was only slightly less damaging per dollar than natural gas (at 46 cents per dollar of value) and gasoline from crude oil (at 41 cents per dollar of value).
They were, however, slightly higher than beef production (33 cents) and far higher than gold mining (4 cents). Currently, none of these activities are considered sustainable.
According to University of New Mexico environmental economist Benjamin Jones and colleagues, the results represent a set of red flags for any potential sustainable sector (investment or otherwise).
"While proponents regularly offer [Bitcoin] as representing a kind of 'digital gold' from a climate damages perspective [Bitcoin] operates more like 'digital crude'."
As the technology matures and becomes more efficient, Bitcoin's climate damage should decrease over time. The new calculations show that isn't the case.
The mining process itself requires exponentially more electricity due to the exponential rise in computing power.
Bitcoin mining in 2020, for example, consumed more energy than Austria or Portugal combined.
Like many other cryptocurrencies, Bitcoin relies on 'proof-of-work' mining (PoW), which is an energy-intensive way to validate money in a decentralized ledger.
'Miners' compete to solve cryptographic puzzles to validate transactions on the blockchain and create new coins during the verification process.
It is theoretically possible for special computers to generate new blocks forever, but each one adds enormous amounts of energy to the verification process.
The difficulty of finding a new blockchain increases with each new one mined.
The mining of blockchains might be more sustainable if the computational effort was powered by renewable energy. The majority of them, however, are powered by fossil fuels like coal and natural gas.
Bitcoin mining will still cause large and growing climate damages even if it uses a much higher percentage of renewable energy than it does today.
"Absent such change, it may be time to forgo a 'business-as-usual' approach and consider collective action", such as increased regulation, Jones and colleagues write.
Due to energy concerns, Tesla, for example, will no longer accept Bitcoin payments.
There are other, greener alternatives to Bitcoin, which are currently based on the global electricity usage required for PoW-based cryptocurrencies.
PoS-based currencies have recently been proposed as a solution to PoW's high energy consumption.
A Proof of Stake (PoS) algorithm validates cryptocurrencies by giving away the next block at random instead of the winner. While it requires less investment of hardware to be in the game, individuals still need to pay a substantial 'stake', which requires having the capital to start with.
Bitcoin miners would have to swap all that hardware for cash if they switched from a PoW to a PoS system, a time-consuming and difficult task.
In 2022, Ethereum, another popular cryptocurrency, will switch to PoS, reducing the platform's energy requirements by 99 percent.
As a result, Bitcoin's energy consumption, and, by extension, its climate damage, would likely be negligible, say the authors.
It is unlikely, however, that Bitcoin will make the switch. There is already too much invested in the Bitcoin PoW system for the Bitcoin community to want to change it.
Bitcoin currently makes up about 41 percent of the global market share among cryptocurrencies.
"PoW-based cryptocurrencies are on an unsustainable path," the authors of the new paper conclude.
"If the industry doesn't shift its production path away from PoW, or move towards PoS, then this class of digitally scarce goods may need to be regulated, and delay will likely lead to increasing global climate damages."
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