You’ve probably heard of cryptocurrency before, but you may not know what it is. Simply put, cryptocurrency is a digital currency exchanged through computer networks. One of the main features of cryptocurrency is that it is completely decentralized and is not controlled or maintained by a bank or government agency. The records of who owns which digital coins are stored in databases that secure transaction records, verify the transfer of coin ownership, and create new coins. Over the past decade, hundreds if not thousands of new cryptocurrencies have popped up, all stored on digital ledgers, almost always blockchains.

Although cryptocurrency is not a universally-recognized form of currency, it is used frequently in tech circles of the Internet to purchase and transfer goods and services. Today, ‘investing’ in cryptocurrency is treated similarly to investing in stocks. People open accounts with crypto trading firms to make money off the incredibly rapid rises and falls of each currency’s value. On the other hand, cryptocurrency isn’t necessarily all that people make it out to be. Besides the many sociopolitical dilemmas it presents, the energy requirements of every cryptocurrency transaction have serious consequences for our climate, and we may not know the true extent of them until decades later.

Cryptocurrencies’ non-environmental problems are widespread and structural. First, cryptocurrency as a concept was invented to decrease wealth inequality, and counter the perceived ‘excessive control’ that banks had on spending. It would take advantage of people’s general distrust of banks, replacing the traditional economic system with a decentralized currency that was theoretically regulated by the masses. However, the core tenets that drive cryptocurrency are often rooted in ideas that have less to do with banks and more with bankers. This makes cryptocurrency communities incredibly vulnerable to spreading anti-semitic ideas and stereotypes about Jewish people and banking. From a sociological perspective, cryptocurrency is almost unanimously adopted by right-wing extremists and white supremacists, who have turned to it as a method of raising funds after mainstream currency exchange systems like PayPal and GoFundMe began to disable donations to their movements. There are massively racist collections of NFTs (a type of cryptocurrency hosted on the Ethereum blockchain, exchanged as tokens that represent images) available on OpenSea, the most popular NFT marketplace, including slave trades and Nazi extremist propaganda.

In addition, the lack of regulations around cryptocurrency means it is rife with many of the schemes that are illegal in the normal stock market, particularly those known as “pump and dumps.” These start with a small group of investors encouraging others to buy a new cryptocurrency with the promise that it will have massive returns as the coin goes up in price, only to then sell their coins at the currency’s peak, prompting a downward spiral that may leave late investors in financial trouble and prompt gambling addictions. The prevalence of “pump and dumps” points to another problem with cryptocurrency: only those who get in early on a currency can make money off it, and most of the time, that means people who already have money. Cryptocurrency is rampant with unregulated crime, and it makes crypto enterprises inherently unethical.

Cryptocurrency originally promised to solve the large-scale wealth inequality perpetrated by capitalist power structures, but the most popular currencies like Bitcoin actually demonstrate worse inequality issues than the economy. A study by MIT and the London School of Economics showed that of the 19 billion Bitcoins in circulation, only 0.01% of buyers controlled 27% of the supply. Specific currencies have individual issues—NFTs, for example, promise the buyer not the picture itself but a receipt that says they own the picture. NFT marketplaces are overrun with people reposting art that doesn’t belong to them and whose artists did not consent to their work being sold as tokens. Ultimately, the many social and economic complications baked into the cryptocurrency system illustrate that the problems it purports to fix are not problems with the banks themselves. They are patterns of human behaviour that will occur in any currency system under a capitalist framework, regardless of centralization.

Cryptocurrency transactions require consensus mechanisms to verify that a user is not spending the same coin twice. This is achieved through something called proof of work. While in a centralized blockchain, an overarching authority would validate all of the transactions or new blocks, decentralized blockchain systems will randomly choose someone to write the next block of transactions proportional to the ‘work’ they have completed and reward them with new or existing coins—similar to a lottery system.

The work (solving complex maths problems through sheer computational power simply to verify the transactions) is arbitrary and expends massive amounts of generally non-renewable energy, but since the only way to undercut the system’s security would be to acquire more than half of the working power, proof of work (PoW) is generally the most stable consensus mechanism. The alternative structure, proof of stake (PoS), relies on users’ upfront collateral rather than random selection. Although it does use less energy, the starting collateral is only possible for people with a lot of initial wealth and time, which immediately undercuts the argument of cryptocurrency being a space for greater income equality and inclusivity.

Cryptocurrency mining and transactions push up electricity costs for the people living in those areas. They tend to set up crypto farms—large amounts of computer hardware—in colder regions where it is easier to keep servers cool, and the power demands of these server farms force locals to pay more for their electricity without any verifiable economic benefits. In 2017, Bitcoin mining alone was estimated to consume 0.5% of total global electricity, and the amount has increased since then. When cryptocurrency does use renewable energy, it effectively forces other businesses to resort to fossil fuels by using massive amounts of the limited renewable resources and driving up the price greatly. To meet the energy requirements for coin transactions and verification, Bitcoin consumes most of Iceland’s renewable energy, meaning that the prices of renewables are rising and less renewable energy is available for public use.

Many proponents of cryptocurrency point to other sources that also use large amounts of energy, especially real-world currency transactions. However, they fail to continue the scale and cost of a single action. As of 2021, one Bitcoin transaction (the blockchain consensus mechanism associated with ‘mining’ Bitcoin) used more electricity than a million Visa transactions. The sheer energy cost of individual transactions also leads to larger problems like those mentioned before: prices going up and renewable energy becoming less accessible for others.

The majority of cryptocurrency mining is located in the United States and has been since China implemented laws governing cryptocurrency farms, so statistics from the United States are most relevant. According to the United States Energy Information Administration, the average cost of a single kilowatt of electricity (across all sectors) in November 2021 was $11.21 USD. Considering how much energy is consumed in each individual Bitcoin transaction, the detrimental impact on people and businesses in the area cannot be overstated. While the energy cost of cryptocurrency server farms is comparable to activities like streaming and YouTube, those provide users with entertainment and accessibility to other resources. Furthermore, crypto has no intrinsic or real-world use, therefore its harm to the environment versus societal value is not scalable; the energy cost will always outweigh the pure worth of the currency and the value in exchanging it.

One of the major issues with cryptocurrency is the mystery surrounding it. Many people simply support crypto because they don’t understand the specifics of it and the harmful effects, both sociological and environmental. They also hear about upcoming innovations that will mitigate the current issues with cryptocurrency, without recognizing that there is no viable way to increase efficiency without sacrificing security and that even if crypto became 100% renewable, it would still be taking away renewable energy from other businesses and raising the price of electricity for people living there. Tech has come a long way in becoming more renewable over the past few decades, and cryptocurrency is like a backslide—a severe one, considering the current climate and poverty crises.

In order to prevent higher electricity and renewable prices, regulate crypto’s inequality issues, and mitigate the spread of hate speech and racism via cryptocurrency, governments must implement regulations around crypto mining. However, pushing back against the problems with cryptocurrency also requires the general public to know and understand the harm of decentralized web currencies.

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