Bitcoin was the pioneer element in the democratization of cryptocurrencies and, since its rise, many others have appeared. Nevertheless, Bitcoin, whose price fell from 69,000 US dollars in November 2021 to nearly 20,000 dollars in mid-June 2022, continues its descent into hell, dragging with it the entire crypto-asset market, whose value is reached below the 1000 billion US dollar mark. In addition to this devaluation, cryptocurrencies are in the sights of governments and environmentalists. Their environmental weight is not negligible, even if some cryptocurrencies are trying to green their image. So, what is the future of cryptocurrencies?
Basically, a cryptocurrency is an alternative currency that has no physical form and is entirely virtual. It is exchanged directly peer-to-peer, without the intermediary of a bank or other controlling institution.
All these virtual currencies are mined. Mining is one of the most important steps in the creation of cryptocurrencies, the basis of the blockchain. Its objective is to secure the chain of transactions (blockchain), against a certain amount of the currency in question for the miners (as a "remuneration" of the calculation). In practice, a blockchain is a database that contains the history of all exchanges made between its users since its creation. Mining a cryptocurrency therefore means ensuring the integrity of the blockchain.
However, the mining (or mining) of Bitcoin or any other cryptocurrency is increasingly challenged across the world and compromised by various national bills and bans. As a result, in 2021, China made this so-called “proof of work” activity illegal. The government justified this decision by its ambition to become carbon neutral by 2060. Moreover, it is one of the spearheads of the detractors of virtual currencies, the energy-consuming need maddening in these times of climate crisis. Tim Berners-Lee, credited as the inventor of the World Wide Web, went so far as to describe “Bitcoin mining as one of the most fundamentally wasteful ways to use energy .
Officially invested in Bitcoin with his company Tesla, Elon Musk cast opprobrium on cryptocurrency in May 2021 by announcing that he would no longer accept this means of payment for his cars as long as the production of this cryptocurrency was "dependent on fuels carbon-rich […], particularly coal ". Prices then fell.
Then, in July 2021, he shook up the cryptocurrency price yet again, saying, "It looks like bitcoin is leaning a lot more towards renewables and a bunch of heavy coal plants that used to be used … have been closed, especially in China ". Moreover, several studies have shown that an increasing share of total electricity consumption comes from renewable energy sources such as hydro, solar or wind power. However, estimates diverge considerably, ranging from 20% to 70%.
Indeed, these cryptocurrencies are de facto very energy-intensive for the validation of transactions on their blockchain. A study by the University of Cambridge points to the high electricity consumption induced by the Bitcoin blockchain, which it estimates at around 92.93 terawatt-hours (TWh) per year as of July 2, 2022, slightly more than the annual consumption. from a country like Kazakhstan (92.134 TWh). This consumption also represents that necessary for the University of Cambridge for 679 years!
Another problem is the massive amount of energy required for each transaction, compared to traditional credit cards. For example, each Mastercard transaction is estimated at just 0.0006 kWh (kilowatt hour), while each Bitcoin transaction consumes 980 kWh, enough to power an average Canadian household for over three weeks.
A question comes to mind:could Bitcoin mining incentivize the deployment of renewable energy generation? Miners could help stabilize energy grids that struggle with the intermittent nature of renewables. Thus, during periods of abundant production, miners can absorb excess capacity that the network could not otherwise manage. They, in turn, would halt operations when the network ran out. As a result, networks could manage the load more efficiently, which should incentivize the deployment of additional renewable energy-based electricity generation capacity.
Moreover, we can use the same reasoning but in the opposite way. By creating a stable and abundant new demand for energy — which renewables cannot easily supply on their own — miners are extending the economic life of older power plants that run on fossil fuels such as coal or natural gas. In some regions, this has already led to the recommissioning of power plants that were dismantled due to lack of profitability. For example, New York State, with its disused industrial infrastructure and cold climate, represents an El Dorado for uprooted miners from China in particular.
But the state aims to reduce its greenhouse gas emissions by 85% by 2050, which is why New York lawmakers are considering banning it, like Sweden did in 2021, following in the footsteps of China. The New York local Senate voted Friday, June 3, 2022 in favor of a law for the prohibition of the mining of cryptocurrencies said by "proof of work". The governor must now enact it, or veto it. Part of the sector fears that the New York example will be followed in other American territories.
At the federal level, Joe Biden signed a first executive order on broader digital assets in March 2022. It requires the White House Office of Science and Technology Policy to issue a series of recommendations on blockchain-related technologies to September, particularly in environmental matters. It could lead to federal legislation regulating the sector. Bitcoin holders will need to watch the bills closely.
It is for all these reasons, and in the face of urgent climate issues as well as the collapse of their stock market prices, that cryptocurrencies are trying to reinvent themselves in a greener way.
Initiatives have sprung up around Bitcoin to address growing sustainability concerns. Companies are introducing commitments for miners to decarbonize their actions. Other non-mining companies, such as asset managers and stock exchanges, have already started offsetting their emissions through carbon credits. These efforts have led to greater environmental awareness within the industry, prompting digital mining companies to more carefully review their energy supply strategies and take steps to reduce their carbon footprint.
For example, global digital asset mining company White Rock Management recently announced the deployment of its first US Bitcoin mining facility in Texas. The initial mining will be fueled by natural gas derived from active oil wells located on site. Indeed, oil and gas go hand in hand in the deposits, in varying proportions. When technically possible, companies use both resources for their activities. But most of the time, they only use one of the two. Like flares, oil is exploited and gas is burned to get rid of it. The firm is partnering with NGON, a green energy technology and services company, to implement the project.
There are a few cryptocurrencies expressly created in the context of the climate crisis. We can name 5 main ones. Solar Coin is an American initiative which aims to promote the production of solar energy and obtain means to finance energy transition projects. For each MWh produced, both producers and individuals receive a SolarCoin on their virtual wallet.
Ecocoin is a currency that rewards the user for good deeds in sustainability, provided they can be proven by one of the currency's partners.
PlasticBank aims to reduce ocean plastic pollution by putting a price on plastic waste. The currency has a plastic waste recovery rate higher than that of the market, thus promoting collection for recycling and encouraging local authorities to better take sorting into account in their policy. It also finances recycling plants in countries that do not have the means to build them.
Peercoin tackles the energy-intensive blockchain technology needed to issue cryptocurrency. This virtual currency uses “proof of stake” type mining, which avoids the centralization of calculations on the same computer and distributes them to all users of the currency. This method consumes up to 100 times less energy than mining by "proof of work".
Finally, FairCoin brings together all the notions of sustainable development around the same currency. Indeed, the company FairCoop wishes a better distribution of wealth and improve the factors of social links thanks to FairCoin, while limiting the energy impact generated by the creation of this currency.
Today's modes of governance are prone to corruption and are unable to steer humanity towards sustainability, despite the ongoing global environmental crisis. So despite the ecological problems mentioned above, UN experts believe that cryptocurrencies and the technology that powers them (blockchain) can play an important role in sustainable development by improving our management of environmental impact.
One of the most useful aspects of cryptocurrencies, as far as the UN is concerned, is transparency. Because the technology is resistant to tampering and fraud, it can provide a reliable and transparent record of transactions, which is paramount in regions with weak institutions and high levels of corruption.
Indeed, the United Nations World Food Program has demonstrated, through a pilot program in Pakistan, that blockchain can help ensure that financial assistance gets to recipients safely and quickly without the need for to go through a local bank.
Similarly, at least four areas related to governance and sustainability could benefit from the use of blockchain according to researcher Guillaume Chapron from the Swedish University of Agricultural Sciences.
First, blockchain can certify the existence and ownership of anything that can be digitized. For example, a certificate indicating that a community owns a forest can be recorded in the blockchain with a timestamp. Start-ups are beginning to do this, such as the Benben company in Accra, capital of Ghana, which is developing land title registries for that country using blockchain. Georgia and Honduras are doing the same. This could limit the eviction of local populations by corrupt industries or governments.
Second, physical assets can be traced throughout their life cycle. London-based start-up Everledger certifies and tracks the diamond trade, to reduce sales of stolen gems or conflict stones, used by rebel militias to finance their military activities against legitimate governments. Technology platform Provenance, also in London, is developing a blockchain-based protocol to track resources and materials. Companies could track how much water, energy or raw materials they use. The overall environmental impact of businesses or consumers could be recorded on the blockchain and sustainable behavior rewarded with incentives such as tax credits.
As a result, Guillaume Chapron believes that local communities with rights to natural resources could receive direct payments in Bitcoins for ecosystem services or for achieving conservation objectives. Protecting nature would then be more profitable than exploiting it recklessly.
Additionally, blockchain could ensure that conservation and development funding is used as intended. Money can be tracked, tied to a specific goal, have an expiration date, or be released when project milestones are met. Funds cannot be embezzled. Intermediaries are removed from the process.
Last point:the use of the blockchain can be done in politics. A public, shared, and immutable registry of assets and transactions can help the public hold politicians accountable. Authorities cannot remove or tamper with evidence, or seize or shut down blockchain-based institutions.
Money is the sinews of war, even if it is only virtual. Indeed, Russian banks were barred from the SWIFT system last February via sanctions imposed by Western countries in response to the Russian-Ukrainian war. Since then, Moscow has been trying to find an alternative financial payment system to SWIFT in order to protect its foreign trade transactions.
Rostec, a public defense conglomerate headquartered in Moscow, announced that it has developed a blockchain platform that can be used for international settlements. Called CELLS industrial blockchain, it is supposed to replace SWIFT in Russia.
The digital system of international payments will allow Russia to pay for its imports in its national currency, the ruble, instead of the dollar. According to the Rostec Group, the new system will also allow foreign countries to pay for their imports from Russia in their national currency. The system should be able to process up to 100,000 transactions per second, with the possibility of increasing its capacity. Russia is developing a very unique approach whereby cryptocurrencies would be banned from use in the country while being the preferred way to continue selling and exporting its resources abroad.
Additionally, Russia’s third-largest oil producer, Gazprom Nef, has just signed a deal with green cryptocurrency hosting company BitRiver to set up bitcoin mining facilities on oilfields. This is how on the one hand Russia is entering the world of cryptocurrency, and on the other hand, that Gazprom Nef hopes to reduce its carbon impact by providing the surplus natural gas to mine Bitcoin, while such as White Rock Management in the United States.
In conclusion, the future of cryptocurrencies is still very uncertain and subject to factors that seem totally arbitrary. If they can provide evidence of reliability in certain areas and even be partially green for a few, they can however ruin an entire country, such as El Salvador. Indeed, nine months after the start of its experiment by accepting Bitcoin as legal tender, while betting on green energy for the mining of the latter, El Salvador has lost nearly half of its investment, while Bitcoin has lost more than 70% of its value since November 2021. Not to mention that the country now has a growing need for cash to meet the payment of its debt next year, which is expected to exceed $1 billion.
