A summary of everything you need to know about cryptocurrencies. What they are, how much energy they consume, and why the energy transition is also needed to avoid another risk for the climate.
It was 2008 when the mysterious Satoshi Nakamoto, a Japanese figure whose identity has never been confirmed, invented the world's first cryptocurrency: bitcoin. An idea that, within just a few years, went on to achieve staggering, worldwide success. Only ten years later, the digital currency market had reached 110 billion dollars: a value comparable to the gross domestic product of a country like Morocco.
Today there are thousands of cryptocurrencies. What does the word actually mean? Cryptocurrency is the English term cryptocurrency, itself derived from cryptography and currency.
Alongside bitcoin, the list of the most widespread cryptocurrencies includes ethereum, tether, binance coin, and also dogecoin and shiba inu. These are payment instruments based not on the control of a state — that is, a central bank that monitors fluctuations and physically prints banknotes — but on cryptography. The latter allows a network of people to "join forces" in order to generate currency and put it into circulation. However, it is not capable of curbing rampant speculation, which produces enormous (and often sudden) swings in the value of the cryptocurrencies themselves.
"When at the baker's we pay 1 euro for a loaf with our debit card," explains the finance and ethics specialist publication Valori.it, "all we are doing is sending a message to our bank. We are instructing it to transfer a certain sum from our current account to the baker's. The register linked to our account will record '-1 euro', while the baker's will show '+1 euro'. In this type of transaction, banks act as guarantors, because they control and update the databases in which the account balances of all customers are recorded."
Bitcoin was invented to carry out this same type of transaction without needing the intermediation of banks. Their databases are replaced by a ledger: a record of all transactions, continuously updated by a network of tens of thousands of computers scattered across the world. The problem is that banks do not merely provide the service — they also act as watchdogs to prevent fraud. Who takes on that role in the case of cryptocurrencies? To guarantee the traceability and security of transactions, digital currencies rely on a technology known as blockchain.
The literal translation is "chains of blocks". It is, precisely, the ledger (register) shared by all those who contribute to generating cryptocurrencies (the so-called mining) and to managing their transactions. Ensuring that blockchains function requires an immense computational capacity. That is why hundreds of thousands of computers need to be networked together. And that is why the so-called "factories" of bitcoin & co came into being — whose energy consumption has literally exploded in recent years.
These are places — mainly warehouses or even hangars — in which thousands of servers work together, stacked one on top of another, day and night, 24 hours a day, without pause. One might ask: why this race to mine? Because cryptography is like a puzzle whose solution can be found through calculation. And whoever finds it first receives a reward within the blockchain system (paid, of course, in cryptocurrency).
The French financial daily Les Echos visited a bitcoin factory in China and explained the system in a particularly effective way: "The computers have the goal of solving cryptographic problems. It is a bit like trying out billions of combinations on a safe. The miner who manages to do so in the shortest possible time unlocks it." To better understand the process, one can imagine a miner as a person playing dice in a casino. A die with a thousand faces — not six, but a thousand. To win, they must roll a number lower than 10, so their chances of winning on the first throw are very low. This is why they roll the dice as quickly as possible and, even so, it will take them a long time to succeed.
But if many people — many "miners" — are rolling the dice, the duration of a single round becomes shorter, because it is statistically more likely that someone will roll a number lower than 10. And when that happens, all the other players verify that it is true: this is how the system guarantees its own reliability even in the absence of a central controller. The winner takes the prize on offer, and another round, another game, can begin.
Up to this point the system creates no problems — quite the opposite. It is an innovation. Blockchain technology, applied to other sectors, can in fact guarantee "bottom-up" and "distributed" oversight. The problem, in the case of cryptocurrencies, is its extremely intensive use. One of the topics that generates debate is, in this respect, the environmental impact: it has been calculated on multiple occasions, and the figures are striking. In 2018, the cryptocurrency-focused portal Digiconomist explained that running bitcoin alone consumed the energy that 10 million European citizens normally use in a year — more than that of the entire population of a country like Chile. But four years ago cryptocurrencies were far less widespread than they are today. It is no coincidence that the Cambridge bitcoin electricity consumption index (Cbeci) estimated in 2021 that the annual consumption of bitcoin alone could be 128 terawatt-hours. That is 0.6 per cent of global electricity production, equivalent to the consumption of a wealthy country like Norway. For comparison, in 2019 a digital giant such as Google consumed "only" 12.2 terawatt-hours.
All of this is compounded by the fact that in many cases the countries where mining is most widely practised are developing economies in which electricity production still relies heavily on fossil fuels. According to an analysis by New Scientist, CO2 emissions linked to bitcoin could soon surpass those of several European nations. The British science magazine cites in this connection a study published in Nature Communications and led by Guan Dabo, a professor of Climate Change Economics at Tsinghua University in Beijing.
The researcher calculated the overall impact in terms of greenhouse gas emissions from bitcoin mining, arguing that it will reach 130 million tonnes of CO2 in China in 2024 — a figure higher than the amount Italy releases into the atmosphere every year. The trend has also been confirmed by another study, likewise published in Nature, according to which cryptocurrency "factories" risk jeopardising the climate targets that China has set itself — starting with the goal of net-zero greenhouse gas emissions by 2060.
Consider that the entire process of creating and buying and selling bitcoin consumes more than 90 terawatt-hours of electricity per year. More than a country of 5.5 million inhabitants, such as Finland, consumes. All of which are reasons why this activity takes root in countries, such as Kazakhstan, where energy is cheap, driving up prices.
Then there is the issue of electrical and electronic waste. To increase the speed of the "dice games" — that is, the speed at which bitcoin is mined — computer turnover is frantic, to the point of causing problems with disposal. According to calculations by an economist contacted by the New York Times, Alex de Vries, the computing power needed to mine cryptocurrency roughly doubles every year and a half, making it necessary to replace machines.
The damage to the climate is one of the reasons that prompted entrepreneur and visionary Elon Musk — Time's personality of 2021 — to reverse course and no longer accept bitcoin as payment for his electric cars, Tesla. This was due to concerns "about the rapid increase in the use of fossil fuels for mining and transactions" linked to cryptocurrency.
But, above all, it is governments that have been acting. In mid-2021, China decided to crack down on mining, halting all activities in the province of Sichuan, where numerous facilities are concentrated. The measure follows the one introduced in 2017, which decreed a ban across the entire country. Which, however, was followed by widespread tolerance on the part of the authorities. A similar choice to that made by two other nations, Kosovo and Iran, which, faced with continuous blackouts, decided to ban the creation of bitcoin.
Also in China, a halt to activities was decided in Qinghai and Inner Mongolia as well. The result: China's capacity to contribute to mining was reduced by 90 per cent, according to the Global Times. So, many decided to move elsewhere. And one of the nations that welcomed bitcoin facilities is Kazakhstan: a paradox, given the severe energy crisis gripping the former Soviet republic. And which has in turn been triggering a deep political crisis, with popular uprisings and the deployment of troops sent from Moscow at the request of Kazakh president Qasym-Jomart Toqaev. "Electricity demand in Kazakhstan rose by 8 per cent in 2021 – explains the Uzbek website Kun, as reported by Courrier International –, compared with the usual growth of 2 per cent." This was precisely due to "the massive influx of miners from China", especially from the month of September onwards.
Which confirms how, in any case, the issue must be addressed on a global scale. Because emissions, whether they come from China, Iran or Kazakhstan, end up in the Earth's atmosphere regardless. A study by the World Inequality Database indicated that, from the pre-industrial period to today, 2,500 billion tonnes of CO2 have been released into the atmosphere. If we are to limit the rise in average global temperature to a maximum of 1.5 degrees centigrade by the end of the century, we can afford to release, at most, a further 300 billion tonnes. At the current rate, according to the analysis, we will exhaust this "bonus" by 2028.
