Rule Of Thumb: The Ethics Surrounding Bitcoin And Climate Change
Francesco Carta fotografo
Bitcoin has come a long way since its first commercial transaction: a couple of pizzas bought by Laszlo Hanyecz costing 10,000 Bitcoin in 2010. At the time, each bitcoin was worth approximately $0.003; now, the value is at $59,820.70. Bitcoin introduced the promising idea of a payment network that uses decentralized currency free from government regulation. But often, a technology that seems sensational is not without ethical dilemmas that require investigation.
In opposition to fiat currency, cryptocurrency allows users to send payments freely between peers without a third party's involvement. For example, Visa transactions require financial institutions to process and authorize every payment. Bitcoin transactions are made anonymously and freely. Each transaction is logged into a blockchain.
Blockchains provide a public ledger where all transactions can be viewed. Those transactions are posted with a unique address that provides security and anonymity for each purchase. Blockchain technology improves transaction security and removes the potential for user error. Transactions also become more efficient and less costly with blockchains.
The popularization of bitcoin spawned the conversation of blockchain technology. Investors and businesses are drawn to using blockchains for the benefits it has proven to have. Multi-billion dollar banks are optimistic about the use of bitcoin and believe it may improve the trading of loans, securities, and derivatives. Societies moving towards cashless transactions embrace cryptocurrency.
But with a currency that is permissionless, pseudo-anonymous, and allows for global financial freedom, there are bound to be some less-than-moral transactions made.
The most controversial use of Bitcoin came from it being the preferred currency for transactions on the infamous Silk Road. The Silk Road was the original dark-web site that enabled the sales of drugs and stolen or illegal goods anonymously. Created by Ross Ulbricht, the site ran on a network that made tracking the location of the user nearly impossible. More than being a haven for drug traders, the Silk Road sold some unethical goods and services, such as legitimate passports and means of hiring hitmen.
More often than not, most of the Silk Road purchases were made in bitcoin because the transaction history between buyers and sellers did not include a bank account, ID, social security number, or name. The only traceable information was the delivery address, which was typically an unassociated PO box. The Silk Road's success increased the value of bitcoin; in turn, so did the popularity of bitcoin transactions on the site. From 2011 to 2013, the site did $1.3 billion worth of Bitcoin in sales.
And while potential purchases made with Bitcoin can be ethically questionable, some would argue that the means of creating bitcoins raises ethical concern.
Bill Gates said that "Bitcoin uses more electricity per transaction than any other method known to mankind."
How does Bitcoin impact the environment?
New Bitcoins are created by solving complex mathematical problems; this process is called Bitcoin mining. Mining is the only way new cryptocurrency can be released into circulation. Bitcoin miners also make the bitcoin payment network trustworthy and secure by verifying its transaction information. A new Bitcoin is mined when someone is the first to arrive at the correct answer, or closest answer, of a numeric problem. However, the mathematical work is mainly guesswork. With there being trillions of possible correct guesses to mine a Bitcoin, the process is extremely arduous. This is why miners need a great deal of computing power.
In the early stages of Bitcoin, miners could work from their home computers. As the number of bitcoins in circulation increases, the difficulty to mine increases. The problem increases to keep the minting process at a stable rate. This ensures that the ability to process and verify transactions functions smoothly. Therefore, the mining and energy usage needed becomes a never-ending cycle. More miners increase the difficulty to mine, which requires more computer power to solve new bitcoins, ultimately requiring more resources to produce more carbon emissions.
Research at the University of Cambridge calculated that Bitcoin uses more electricity in a year than the entirety of Argentina. In one year, Bitcoin generated 69 million tons of carbon dioxide, equivalent to Austria. Carbon dioxide and methane are the primary greenhouse gases that contribute to climate change. Another study suggested that if Bitcoin continues to grow at the rate it is, it could "produce enough carbon emissions to raise global temperatures by almost 4℉ as soon as 2033."
As companies and investors claim to be more eco-conscious, is it ethical to invest and use Bitcoin?
Take Tesla, for example. Tesla aims to "accelerate the world's transition to sustainable energy." The company that solely produces electric cars has invested in $1.5 billion worth of bitcoin. Tesla will also be the first automobile company to accept payments using Bitcoin. But is Tesla's ideology supported by Bitcoin? If carbon emissions produced from mining Bitcoins are unsustainable, is it hypocritical for Tesla and other companies focused on climate to have any relationship with Bitcoin? With Elon Musk's support, he has been "credited for raising the prices of cryptocurrencies." As Bitcoin becomes more popular, the more resources its ecosystem uses.
Bitcoin offers promising prospects for the way we make transactions. For countries that are experiencing inflation as a result of economic policies, they are using Bitcoin as an alternative currency. International transactions are made easier by using Bitcoin because they are not subject to exchange rates or other fees. A paperless currency also brings the potential for less violent crimes and theft to occur.
While bitcoin can act as a hedge against inflation caused by failed monetary policies, it remains to be seen if it can survive the sands of time to remain an environmentally sustainable, decentralized currency of the future.
