It would perhaps be easier to sell ice to an Inuit than to convince the entire world population to act in unity to evade the forthcoming climate calamity due to anthropogenic greenhouse emissions.

The warning signs are flashing red, and the culprits are blatantly me and you. But who is to blame when the culprit is anonymous? More specifically, when the perpetrator of an accelerated climate Armageddon is a libertarian computer-programmer under the alias ‘Satoshi Nakamoto’.

This is the issue presented to us by the booming popularity of decentralized finance and more importantly of Nakamoto’s brainchild ‘Bitcoin’.

Bitcoin is a digital currency which relies on peer-to-peer communication to extract the intermediary (trusted third parties – e.g., central governments and banks) in irreversible financial transactions in order to provide security and most importantly ‘control’ - to the people. This is an idea that sparks approval amongst various cryptocurrency enthusiasts and laid the groundwork for future systems such as Ethereum, Ripple, Polkadot and Cardano. However, despite its political and philosophical appeal, the use of decentralized finance as an investors’ asset has skyrocketed its popularity to far beyond what Nakomoto ever originally intended.

Since its initial release in 2009 there’s been over 400,000 Bitcoin transactions and approximately 4.6 every second. As a result, the question frequently arises as to whether the growth of unregulated finance is sustainable and moral.

Consequently, this article will consider several reasons as to why cryptocurrencies are arguably more harmful to society than good by focusing on the negative environmental factors enhanced by the production of these tokens known as ‘mining’.

To grasp the sheer extent of this problem, we first need to understand what exactly mining is. There are however two types of cryptocurrency mining: proof-of-work and proof-of-stake. Both are very different in how they operate, and this thus removes the notion of a uniformed way of ‘mining’. As a result, the implications they both have to the surrounding world vary greatly – with the latter being the most modern method and the prior being the term most associated with the phrase ‘Bitcoin mining’ as it was the original method suggested in the Bitcoin whitepaper.

Despite this, we can generalize the functions of mining as 1) To enter the supply of new coins into circulation and 2) To verify new transactions by the ledger*.

Proof-of-work (POW) mining achieves this through requiring the miner to complete a complex computational mathematical problem in order to be granted the next ‘block’ of bitcoins. The block is awarded to the computer which solves the math’s problem first in order to start the blockchain*. They then distribute the supply of these tokens on the market in order to potentially acquire a profit.

According to a study by the BBC, Proof-of-work miners “produce 30,700 tons of e-waste each year” which is amplified by the infrastructure only reportedly having a lifespan of 1.29’ years’. As economists we can conclude that our first negative externality to bitcoin mining is the dire waste crisis due to the disposable nature of mining infrastructure and the intense electrical power needed to perform these operations.

In addition, a study produced by the journal ‘natural climate’ stated that the emissions from Bitcoin mining could produce enough greenhouse gases by itself to raise global temperatures by up to 2 degrees Celsius as early as 2033. The waste from mining is more than that produced by several small nations.

The threat of a potential dramatic increase in global temperatures is catastrophic for international and regional governments’ plans to counteract climate change. Crop supplies would decrease due to droughts and irregular, unpredictable weather patterns, causing cost-push inflation. The frequency of adverse weather conditions would rise, meaning governments may have to dedicate greater amounts of expenditure into preventative disaster measures which could consequently result in taxes and less funds set aside to public services.

Moreover, the decentralized selling point of cryptocurrencies offers efficient shelter for the confidential transfer of demerit goods such as class A drugs on the dark web. When abused, that can be a strain on public healthcare and policing services - eating deeper into the chancellor of the exchequer’s budget.

What actions can governments take to ease the problem?

Recently, on Friday 24th September, the Chinese government posted online that all activity related to cryptocurrencies within its territories are illegal. Immediately Bitcoin’s price plummeted by 8%. This preventative measure is an example of extreme government intervention performed early to prevent the incurrence of future costs due to the broad negative externalities of cryptocurrencies in developed nations like China, which houses the largest known mining plants. It’s thus reasonable to conclude that they are simply the first in a long line of rake-wielding nations ready to plunge their spear into Satoshi Nakamoto’s ideological vision.

But what about Proof-of-Stake mining?

Proof-of-stake is the second form of mining that has largely been put in place to counter the environmental implications of proof of work to offer a more efficient and less exhaustive form of verification and supply extraction. Proof of stake works by granting mining power based on an existing share of blocks in the network. Meaning that to mine – you must own!

Thus, there are several reasons why proof of stake is better than proof of work and they are as follows: 

1. More energy efficient – you do not need to waste energy using dozens of computers to complete complex mathematical problems.
2. Reduced hardware disposal -The wastage due to the limited lifespan of crypto mining hardware is consequently reduced.
3.More decentralization – Fuels the USP of cryptocurrencies by making the process of verification and mining more reliable by barring access to novice ‘miners’ who do not own supplies of the coins they engage with and trade.

Its first major appointment will be in Vitalik Buterin’s Ethereum, on December 1st, as announced in their ‘London hard fork’ in August. This is a sign that the long-term benefits of proof-of-stake mining are not being ignored.

Although proof of stake has environmental advantages over proof of work it is not exactly carbon neutral. It offers a less intensive electronic alternative to proof of work and is only slowly being adopted on a large scale.

This loose bandage to a seeping wound offers a false sense of security to the future of blockchain development and it’s up for us as individuals to infer whether the ice under our Inuit’s feet is worth the short bitter-sweet financial gain.

By Francis Kwame Adu

Ledger* – A record of digital accounts stored in a blockchain                                                                                    

Blockchain* – A growing list of records called blocks that are linked together across computers using cryptography thus making them a fully decentralized form of data storage which means blocks each contain information from the block previous to it forming a chain with each additional block reinforcing the one before it. Therefore, blockchains are resistant to modification as information cannot be changed from one block without altering every block. This enhances the security of your Bitcoin transactions.