Created and released in 2009 by Satoshi Nakamoto, Bitcoin (BTC, XBT) embodies a very simple concept; we don’t need a centralized agency controlling our money. The Peer-to-Peer cryptocurrency uses a public ledger—a blockchain—to monitor transactions between users, thereby cutting out the central bank. Each transaction is recorded as a block and added to the blockchain. Each user keeps a copy of the ledger as a way to decentralize the system and prevent falsified transactions. As a method of transaction verification, users with the proper computer skills “mine” the blockchain. They use ASICs (Applied-Specific Integrated Circuits) to receive a blockchain and verify the transactions within. In exchange, the miner receives a small amount of BTC. This is where the issue arises.
Mining the blockchain requires a massive amount of energy. In November 2017, the BTC network consumed more energy than the Republic of Ireland. As of May 2018, Digiconomist estimated that Bitcoin usage emits 33.5 MtCO2e annually. When combined with other cryptocurrencies, these emissions rival those of countries like Sweden and Norway. Large emissions are inherent in the mining system.
Mining is a winner-take-all game. The full reward goes to the miner who solves the puzzle first. The greater your processing power, the greater your chance of success. The more electricity you use, the faster your computer runs. As long as the reward for successfully mining covers the cost of that electricity, the practice is profitable. The Bitcoin network as a whole reinvests almost all of the BTC paid out as reward into its electricity consumption.
As I write this, a single Bitcoin (BTC) is valued at $5,651.14. The reward for successfully mining a block is 12.5 BTC (approx. $70,600.00) plus any transaction fees that occurred during the time it took to mine the block (approx. $2500). This process occurs every ten minutes. The system rewards miners for using as much electricity as is feasible and penalizes those miners that don’t.
Although it is hard to predict the rise and fall of cryptocurrencies, their use may return to popularity. On November 14, 2018, Bitsane, a trading platform, released a public announcement that it had officially listed USDT (Tether) for trade. USDT is known as the digital dollar and the first stable crypto-coin. It is backed by the US Dollar and provides an easy method for liquidating cryptocurrencies, making them more tradable and, perhaps, priming them for the wide-use that fans have hoped for.
The blockchain also has the potential to revolutionize climate change action. Groups such as the Blockchain Climate Institute have embraced this technology and have advocated for its use in climate finance and as a reporting mechanism. In a new book, Transforming Climate Finance and Green Investment with Blockchains, 40 experts explore its applications in implementing the Paris Agreement. The topics it covers include blockchain applications in renewable energy smart grids, climate finance transfers, clean technology transfers, carbon markets, and the enforcement of green finance regulations. These topics will also be discussed in various side events at COP24. As widely distributed ledgers, blockchains are “trust machines” that can scale and speed up vital climate actions in the near future.