Digital cash was supposed to be used with Cryptocurrencies. They have become popular as speculative investments.
Cryptocurrencies are inherently wasteful and resource-intensive. In the last six months, the prices of the largest cryptocurrencies have dropped, leading some to suggest that regulation is needed to contain the turmoil.
Some are blaming a collapsing stable coin called TerraUSD which is supposed to be pegged to the US dollar for the slide in prices. The current market crash is probably a combination of many factors.
Bank bonds and treasury bills look boring, while cryptocurrencies and NFTs linked to artwork look appealing, because interest rates have been close to zero for years.
The US Federal Reserve and the Bank of England recently increased their interest rates.
It was designed to be indifferent towards governments and banks. They are cutting sources of risk from their portfolios.
Each year, the most polluting cryptocurrencies, like Dogecoin, use around 300 TW/h of mainly fossil- fueled electricity.
An annual carbon footprint of 114 million tonnes is what the digital currency has. That is roughly the same as 380,000 space rocket launches or the annual carbon footprint of the Czech Republic.
Proof-of-work mining is a way of wasting energy. The process involves computers taking random shots at a long string of digits. The amount of computing power dedicated to this effort is referred to as the network's hash rate.
The network can find a new winner every ten minutes if the hash rate drops because of power cuts or price dips. Each winner gets a chance to verify transactions on the network and is given 6.25 newly-minted bitcoins.
Whether the guessing game is profitable depends on how much the mining outfit paid to set up their computers and how much energy they use to run them.
Coal-fired power stations are used by most proof-of-work mining machines. Cash mining outfits are prepared to waste this electricity until the costs of winning outweigh the rewards, if the price of cryptocurrencies goes up.
The financial incentive to waste energy for mining is lower now that the price is falling. That is good for the climate in theory.
The network has an average of 200 quintillion hashes per second, which is close to its all-time high.
The scale of interest means that mining at current prices is still profitable. For how long?
The value of the digital currency temporarily dropped below the cost of production several times before regaining its previous value. Proof-of-work cryptocurrencies will see an increasing number of miners capitulate if the market stays stagnant.
As profitability drops, miners with the highest costs are more likely to sell off their holdings. It is normal for smaller mining outfits with high costs to capitulate.
A domino effect with major mining firms closing down one after another could cause prices and carbon emissions to plummet. This event is called a death spiral.
There are other potential tipping points to consider. Many big investors, who bought in at higher prices, are now underwater due to big bags of Bitcoins.
According to reports, the president of El Salvadoran has just brought his country's total reserve of Bitcoins up to around 2,300, or about US$72 million at current prices. His country's losses in the virtual currency are adding to fears of a debt default that would cause significant pain to those who had no say in their leader's gamble.
Prominent investors may think that the markets are boring. The environmental losses from high-priced cryptocurrencies are more disturbing.
Poor and vulnerable communities are disproportionately affected by the damage caused by mining, as mining outfits and developers take advantage of economic instability, weak regulations and access to cheap energy.
Locals can be priced out of using these resources for productive purposes. The communities that face the end of the climate crisis tend to be the ones that use the internet.
Governments around the world want to use cryptocurrencies as a tool for economic growth. The crash shows that Bitcoin is useless as a mainstream means of exchange and as a reliable store of value, bringing most users far more pain than profit.
Toxic financial instruments with make-believe valuations were promised to be cracked down after the financial crisis. For the global climate and a stable economy, cracking down now on cryptocurrencies will be a boon for everyone.
If environmental regulation efforts are not globally coordinated or far-reaching enough, the climate will continue to grow.
Peter Howson is a senior lecturer at the university.
This article is free to use under a Creative Commons license. The original article is worth a read.
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