Breaking Barriers With Bitcoin
We live in a digital era where everything is just one click away. From access to bank accounts to the ability to make online transactions, all our assets and data now fit in the palm of our hand. With increased accessibility to data and money, it is no surprise that a new form of technology is changing our banking habits: cryptocurrency.
Cryptocurrency is a digital currency that is used as a medium of exchange. One of the most popular forms of cryptocurrency is bitcoin. Backed by an innovative piece of technology known as a blockchain, bitcoin offers a more secure, transparent, and reliable way to make transactions than traditional banking services. However, mining bitcoin has environmental costs, such as high energy consumption and a huge carbon footprint. With individuals and companies like Tesla and Mastercard investing in this digital currency, it is important to understand that there are two sides to this coin [1].
Backed By Blockchain
The entire bitcoin network is dependent on a technology known as a blockchain. A blockchain is a structure that stores and records information across multiple computers in a network [2]. Dubbed as the “digital ledger,” blockchain is known for securely and transparently storing data [2].
To understand how bitcoin works, it is important to understand how a blockchain can be applied to store data like transactional records. Multiple computers or nodes make up the bitcoin network [2]. Each node contains the full history of bitcoin transactions ever since it was established in the network [2]. The advantage here is that if there are any errors in a node’s record of transactions, it can cross-reference thousands of other nodes that are part of the network. By storing data this way, no transactional record can be modified or removed because there are multiple entities involved. This ensures that all transactions occur securely and accurately.
The decentralised nature of blockchain provides an additional advantage for bitcoin users: transparency. It is important to understand that transactions can be observed live by any node in the network. During each transaction, a new block of data about that activity is added to the blockchain that each node has a copy of [3]. The block of data contains information like the timestamp of the transaction, the amount involved, and the bitcoin addresses of the sender and receiver [3]. Having multiple copies of this information throughout the network enables the path of your bitcoin to be easily tracked and traced. It also reduces the possibility of counterfeiting or double-spending.
With bitcoin making transactions more transparent, the governments of developing countries would gain many social benefits by using this network. For example, a drastic decrease in corruption may arise because the information about the path of a bitcoin is just one click away, making it easier to keep track of government spending. If governments are able to take advantage of this transparency factor, bitcoin could help reduce poverty rates and increase the rate of development in countries around the world [4].
As a result of all these advantages, many believe bitcoin will disrupt the banking industry and revolutionise the way we make transactions. It will also help solve some of the growing issues in the digital space, such as transaction fraud, which involves making unauthorised transactions with stolen data [4]. Finally, through bitcoin, international transactions can become easier, more secure and transparent, providing many benefits for developing countries [4].
Bitcoin and the Environment
Despite the benefits of bitcoin, this technology does come with environmental costs. One of these concerning aspects includes the process of mining bitcoin. The role of bitcoin miners includes creating and introducing new bitcoin to the network as well as verifying existing transactions [5]. To achieve this, bitcoin miners need to solve complex mathematical puzzles that can often become easier with the assistance of machinery [5]. If the puzzle is successfully solved, miners are rewarded with bitcoin as an incentive [5].
To date, 18.5 million bitcoins have been mined [5]. And, there are still about 3 million bitcoins left to be mined before we have reached the entire supply, which is estimated to occur by 2140 [5]. Mining these new bitcoins will take special computers that require a lot of electricity. Data from Cambridge’s Center for Alternative Finance shows that bitcoin’s electricity consumption is estimated to be about 115 terawatt-hours (TWh) per year [6]. To put this in context, a single bitcoin transaction has the same carbon footprint as watching 51,210 hours of YouTube [1]! With bitcoin having such a colossal carbon footprint, the question arises of whether the concerning drawbacks outweigh the promising benefits.
Environmentalists are a vocal group in this debate. There is great concern that miners may go wherever obtaining electricity is cheapest to power their energy-intensive computers [1]. Unfortunately, coal mines are one of the most popular options miners resort to. This is because coal is widely available and easy to transport, therefore making it a cheap energy source when disregarding its social and environmental effects. If coal continues to be used in bitcoin mining, there could be huge environmental consequences.
Burning fossil fuels like coal cause harmful gases to be released into the air. This increases pollution and negatively impacts air quality, exacerbating climate change. Additionally, there are currently no government-backed agencies that are monitoring the locations that bitcoin miners are going to and the energy source being used. Without strictly tracking and regulating the locations of where bitcoin can be mined, the possibility of overusing environmental resources only increases. To avoid this, governments will need to monitor the energy consumption for mining bitcoin and possibly take actions like restricting investment in bitcoin at centralised trading centres for short periods. This way, the demand for bitcoin can decrease as researchers find alternative ways for bitcoin mining.
Conclusion
Figure 1 - The Advantages and Disadvantages of Bitcoin. By Esra Almaeeni, Youth STEM Matters Artist.
Overall, bitcoin shows a lot of promise, yet also has some negative consequences (Fig. 1). Bitcoin is offering countries and institutions a new way to make transactions without compromising security and transparency. This could lead to social benefits that help developing countries make transactions more flexible. At the same time, bitcoin has a large impact on the environment and carbon footprint because it can lead to miners obtaining energy from harmful sources. This is where governments and banks need to come together and decide on how bitcoin can be regulated and scaled so that the world’s resources continue to be conserved. Bitcoin will definitely continue to pave the way for innovation and development, but determining to what extent it will be used proves to be an interesting challenge for all of us.
References
[1] L. Aratani, “Electricity needed to mine bitcoin is more than used by 'entire countries',” The Guardian, February 29, 2021. [Online]. Available: https://www.theguardian.com/technology/2021/feb/27/bitcoin-mining-electricity-use-environmental-impact. [Accessed 9 April 2021].
[2] L. Conway, “Blockchain Explained,” Investopedia, November 17, 2020. [Online]. Available: https://www.investopedia.com/terms/b/blockchain.asp. [Accessed 9 April 2021].
[3] N. Singh, “Where Blockchain Is Stored: Fundamentals Explained,” 101 Blockchains, June 29, 2020. [Online]. Available: https://101blockchains.com/where-blockchain-is-stored/. [Accessed 9 April 2021].
[4] “10 Ways Cryptocurrency Will Make The World A Better Place,” Nasdaq, January 16, 2018. [Online]. Available: https://www.nasdaq.com/articles/10-ways-cryptocurrency-will-make-the-world-a-better-place-2018-01-16. [Accessed 9 April 2021].
[5] A. Hayes, “What Happens to Bitcoin After All 21 Million Are Mined?,” Investopedia, February 28, 2021. [Online]. Available: https://www.investopedia.com/tech/what-happens-bitcoin-after-21-million-mined/#:~:text=Currently%2C%20around%2018.5%20million%20bitcoin,to%20be%20introduced%20into%20circulation. [Accessed 9 April 2021].
[6] Anon, “Comparisons,” Cambridge Bitcoin Electricity Consumption Index (CBECI), 2018. [Online]. Available: https://cbeci.org/cbeci/comparisons. [Accessed 9 April 2021].
