Ignoring cryptocurrency’s environmental damage ‘grave mistake’

Cryptocurrency

Cryptocurrency mining must be made less energy-intensive to limit the impact on the climate, according to a report from Imperial College Business School.

Despite the financial benefits of cryptocurrencies, such as their potential to offer a financial system that is safe from bankruptcy or crisis, continued investment in more energy-intensive cryptocurrency is likely to increase the probability of a global climate crisis, according to the ‘Damage Limitation: Cryptocurrencies and Climate Change’ report.

The report is authored by Carmine Russo, a visiting researcher at the Centre for Climate Finance & Investment at Imperial College Business School, who is also a PhD researcher at the University of Naples Federico II.

In the report, Russo argues that the main pollution caused by cryptocurrency is generated by its mining procedures. The majority of cryptocurrencies are mined using the Proof-of-Work approach, an energy intensive process that makes cryptocurrency mining environmentally unsustainable.  

The mining process is a ‘race’ among the miners in solving complex algorithms through high performance machines to track the source of the money spent, checking for double-spending, and unlocking the new coins. 

According to Russo, only the fastest miner who can solve the puzzle receives the rewards, whilst the others are just polluters. The more powerful the machines are, the more energy they need, which increases the environmental cost. 

In 2021, the energy usage to mine the most popular PoW cryptocurrencies, Bitcoin (BTC) and Ethereum (ETH), was higher than the overall energy usage of the UK as well as Italy in 2020.

Russo warns that ignoring the environmental damage created by the mining process would be “a grave mistake”.

“The question becomes a dubious trade-off: are we more scared of the predictable consequences of a financial crisis or the unpredictable ones of a climate crisis?” said Russo.  

“Cryptocurrency has become a popular trend, with an ever-increasing number of users. However, the picture of digital currency is far from uniformly positive. Behind the decentralised cryptocurrency system there are significant concerns, especially with respect to environmental damage.”

The report suggests that a shift to more climate-friendly methods for cryptocurrency trading would not only be advantageous but necessary. 

The report highlights how the Proof-of-Stake (PoS) mechanism for cryptocurrency mining is a greener alternative due to its design. Russo argues that in a PoS world, since the entire coin supply is immediately available, there are no complex algorithms to solve because there is no need to unlock new coins. 

Therefore, the powerful computer machines are not required, making the process less energy intensive. Furthermore, the stakers – the miners of the PoS – involved are chosen randomly by the system and only the selected ones can stake, which takes away the “race” element, which reduces energy waste and makes the process more energy efficient.

Ethereum, for its part, is currently undergoing  a ‘Merge’ to move to the PoS mechanism.

Acknowledging efforts made by a number of countries to regulate the cryptocurrency market, Russo makes a number of recommendations, including forcing cryptocurrency miners to disclose the climate-related impacts of their activities, and advertising more environmentally friendly practices to foster awareness. 

This could help investors in their decision-making process by reducing the asymmetric information between them and the market.

“In doing this, legislators may be able to maximise the positive financial role that cryptocurrencies can play in the economic system, while also addressing the environmental damage caused by their creation and usage,” Russo said.

What happens to your crypto when you die?

Metaverse partnership to educate users on crypto safety

Ledger, a company which provides security for critical digital assets and Web3, has launched its first Metaverse initiative on The Sandbox to support, protect and educate users regarding all aspects of digital ownership and cryptocurrency.

Co-created with Metaverse creative agency Swipe Back, the Ledgerverse is an immersive map featuring the ‘School of Block’ which educates users to ensure they’re ‘Metaverse-ready’. 

This includes how to identify scammer threats and phishing traps that they might encounter online through a storyline that’s complete with characters, virtual missions, and secrets to uncover. 

Users will be able to play games with unique rewards while learning about protection in the Metaverse.

An estimated $14 billion was lost to scams in the crypto space in 2021. 

Cryptocurrency shorts

Liz Truss will today be appointed Britain’s third female Prime Minister after she won a majority of votes from the Conservative Party membership. Truss has spoken on crypto twice in the past. In 2018, she said: “We should welcome cryptocurrencies in a way that doesn’t constrain their potential. Liberate free enterprise areas by removing regulations that restrict prosperity.” In a 2020 debate, the then Secretary of State for International Trade said: “We are also looking to rewrite the game on digital trade, to create a world-leading ecosystem that supports businesses of all sizes across the UK… We can ensure that customs duties are not imposed on electronic transmissions, and create great opportunities in areas such as blockchain.”

The Bank of Russia and the country’s Ministry of Finance are considering adopting greater use of cryptocurrency as a way of boosting international trade during heavy economic sanctions imposed due to its invasion of Ukraine.

Non-fungible token software company Dust Labs has raised $7 million from Foundation Capital, Solana Ventures, Metaplex, Jump, FTX Ventures and Chapter One. The company, created by the founders of the DeGods NFT collective, specialises in NFT tools for projects on Solana and Ethereum.

Amid a rise in crypto-related crimes, Australia’s Federal Police has set up a new cryptocurrency unit to crack down on money laundering.

Crypto influencer FatManTerra – a vocal critic of Do Kwon, founder of collapsed crypto ecosystem Terra – claims he convinced people to send him $100,000 of Bitcoin in two hours with vague tweets about an investment scheme which he later revealed as fake.

It is far too easy to scam people in crypto.

And this needs to change.

If you don’t understand where the yield is coming from, you are the yield.

Listen carefully to the vocal critics of any project or investment before getting involved. *Really* listen.

— FatMan (@FatManTerra) September 5, 2022

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Crypto prices

The overall market cap of the more than 20,800 coins is at $995 billion at the time of writing (7am UK), a 2% increase in the last 24 hours.

Market leader Bitcoin – the original cryptocurrency created by the mysterious Satoshi Nakamoto – grew slightly to $19,800. BTC is 3% down on its price a week ago.

Ethereum, the second most valuable crypto coin – created as a decentralised network for smart contracts on the blockchain – added 6% to around $1,650. ETH is 4% up over the course of a week.

Binance Coin is a cryptocurrency created by popular crypto exchange Binance to assist its aim in becoming the infrastructure services provider for the entire blockchain ecosystem. Its BNB token rose 2% to $281, leaving it 3% down over seven days.

Cardano is an open source network facilitating dApps which considers itself to be an updated version of Ethereum. Its ADA token, designed to allow owners to participate in the operation of the network, added 3% to 51c and is 12% up in a week.

The XRP token of Ripple, a payment settlement asset exchange and remittance system, acts as a bridge for transfers between other currencies. XRP rose 2% to 33.5c, with its price 1% up on seven days ago.

Solana is a blockchain built to make decentralised finance accessible on a larger scale – and capable of processing 50,000 transactions per second. Its SOL token climbed 4% to $32.88, 1% higher than its price a week ago.

Polkadot was founded by the Swiss-based Web3 Foundation as an open-source project to develop a decentralised web. Its DOT token, which aims to securely connect blockchains, added 1% to $7.57 and is 4% up on its price a week ago.

Meme coin DOGE was created as a satire on the hype surrounding cryptocurrencies but is now a major player in the space. DOGE climbed 2% to 6.3c and is 1% down over seven days.

Polygon aims to securely connect blockchains as a sort of decentralised internet. Its MATIC token added 1% to 89c, while it is 8% up in a week.

Avalanche is a lightning-quick verifiable platform for institutions, enterprises and governments. Its AVAX token rocketed 6% to $19.96 and is 1% down in a week.

To see how the valuations of the main coins have changed in recent times – and for round-ups of recent cryptocurrency news developments – click here.

For valuations of the top 100 coins by market cap in US dollars, plus 24-hour price change, see below.