Will Crypto Crash End Climate Impact?

Will crypto crash end climate impact? According to several market analysts and crypto experts, even if crypto crashes, it will probably not have any significant positive impact on the climate.

Yes, the harm caused to it may be a bit subdued but it will not be eliminated entirely for sure.

The crypto world has faced and is facing a lot of criticism for its huge energy consumption, a huge amount of fund been wiped off, the probable use of the digital currency for illegal activities including funding terrorism and more.

Still it has risen, and risen significantly over the years.

Therefore, crypto, and Bitcoin in particular, will not reduce the climate impact of the sector even if the market crashes some time soon.

This is in spite of the fact, as several economists point out, that the environmental impacts of these digital assets is set by their market value in theory.

Research shows that when there is an increase in the prices of crypto coins there is an increase in the computer capacity dedicated to it.

This eventually increases the level of carbon emissions in the atmosphere.

Therefore, no matter what happens to the crypto market, the fact that it uses a huge amount of energy to mine even a single crypto coin still remains.

And, it is especially true for Bitcoin which is the most popular and favored crypto coin of all with the largest market cap.

It is due to its high price and profitability chances that draw people towards Bitcoin which increases the number of participants on the network which continues to draw a magnanimous amount of energy.

Will Crypto Crash End Climate Impact?

Will Crypto Crash End Climate Impact

The computers engaged in validating cryptocurrency transactions are called the miners and draw a huge amount of electricity to solve the mathematical problems.

These problems are extremely complex and as the number of participants and the mining difficulty level rises, the consumption of energy increases simultaneously.

This makes crypto mining an extremely energy intensive process where the miners are rewarded with a small part of the relevant crypto coin for their mining efforts.

Bitcoin mining alone consumes a huge portion of the energy and the other crypto coins add to that amount as well as to the footprint.

While Bitcoin and Ethereum are known to consume hundreds of terawatt-hours of energy together in a year, even smaller coins such as Dogecoin, which is a jocular spinoff of Bitcoin, consumes nothing less than 4 terawatt-hours of energy annually.

The figures keep on changing constantly and become higher due to higher participation, as said earlier, in spite of several crypto projects now taking other measures to reduce the amount of energy required to process a transaction.

Therefore, no matter whatever is done or whatever happens to the crypto market, there is no reason to believe that there will be a huge decline in the amount of processing power required for crypto mining especially.

This is primarily because there is a distinct relation between the amounts of electrical power used by a crypto coin to the price of it, though in rough proportion.

The reason to say so is that it dictates the worth of the reward that is to be given to the miners.

For example, the reward for mining Bitcoin successfully as of now is 6.25 Bitcoin in every 10 minutes.

Currently, the value comes to about $210,000.

And, when the value of the reward is higher, the more people will try to win it and they will consider it is worth spending a higher amount of energy for it.

For example, when the value of Bitcoin increased from $8,000 in October 2019 to $60,000 in 2021, the total amount of energy used in this particular sector increased as well from 73 terawatt-hours to 204 terawatt-hours.

However, this is where things turn worrisome.

With the increase in price of the crypto coins and use of energy due to excessive mining, there is a corresponding increase in the amount of carbon emission.

And, a crash in the crypto market does not reverse it.

It is true that a market crash may probably stop the level of environmental impact from rising any further up but the fact that the price of the crypto coin is high is sufficient enough to carry on consuming a significant high amount of energy annually.

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And, this specific aspect takes a long, long time to fade away even after the price of the coin declines. So, the climate impact continues.

Several researches and reports estimated that it will require a very big crash in the price of Bitcoin to about $8,000 to decrease the total carbon emissions significantly due to mining.

However, even then, the energy consumption will not be less than 60 terawatt-hours.

And, this is the amount considering Bitcoin only! Therefore, when all of the crypto coins are taken together, the amount will be really massive.

This is because the cost of crypto mining is divided in two major areas such as:

  • Cost of the mining the hardware and
  • The cost of the electricity consumed for the process.

The miners tend to purchase new computers when the prices of the crypto coins increase.

These computers are higher in power and efficiency since they are packed with more powerful and expensive graphics cards.

Once these purpose-built mining rigs are set up, these are not switched off till the time the cost of energy alone does not become higher than the income expected from mining.

Therefore, the climate impact due to crypto will never end, even if it shows some decline due to decrease in prices of the coins.

The Different Reasons

As said earlier, the climate cost of crypto will continue to rise due to its insatiable hunger for energy.

Several researchers and a lot of data scientists along with different crypto sustainability analysts have found that energy consumption due to mining crypto coins will not fall because miners will continue to seek higher returns on their investments.

This they will do in two ways.

One, they will buy more expensive and powerful computers that are designed specifically for mining, such as those with an ASIC or Application Specific Integrated Circuit that are considered to be mining specialists.

Two, they will pay for using more energy since these computers draw a lot of electricity for operation. Therefore, it will impact fossil fuels.

What Do Experts Say?

Cryptocurrencies, with Bitcoin being the pioneer, were particularly designed to be used as digital cash for making payments instead of the traditional currencies.

However, over time, these digital currencies became more acceptable as a speculative investment.

Cryptocurrencies are also extremely volatile in nature because these coins are inherently wasteful and resource intensive.

Prices of crypto coins drop drastically which leads some experts to suggest that some strict regulatory measures are required to prevent the eventual and inevitable turmoil in the crypto market.

On the other hand, there are a few crypto experts and market analysts who believe in one particular contagion that results in the prices of the crypto coins slide so dramatically.

It is the failing stablecoin called Terra-USD. This coin is typically pegged to the US dollar.

However, according to several other crypto experts, there are several other factors that may in combination influence the current crypto market to crash.

One significant factor is the interest rate. For years, this rate has been very near to zero.

This made the treasury bills and bank bonds look unimpressive as an investment option.

On the contrary, the crypto coins as well as the digital NFTs or Non-Fungible Tokens linked to an artwork looked much more appealing.

Nonetheless, since 2000 the interest rates were increased by the biggest amount by the Bank of England and the US Federal Reserve.

The market has also sobered due to the aftereffects of COVID 19 and market control as well as the invasion of Russia in Ukraine.

Bitcoin and other crypto coins were however designed to be unaffected by such external issues and remain indifferent towards banks and governments.

However, the investors are not. It is human psychology that influences them to cut sources that are extremely risky, such as cryptocurrencies.

Therefore, they started to drop crypto from their portfolios.

Still, people anticipate a rise in prices of Bitcoin and other crypto coins in turn and therefore continue to mine or invest in them.

This, the experts feel, is creating all the issues to the climate since it is not reducing the amount of energy consumption in any way.

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Moreover, it is also believed by the crypto experts that it is the Proof of Work or PoW consensus protocol that is causing all the pollution in the climate due to its exceptional hunger for power.

It is known to consume a huge amount of energy, often enough to power up launches of as many as 380,000 space rockets.

The experts say that this is because the Proof of Work mining is considered to be a controlled method of wasting energy.

The specialist computers involved in the mining process continually take random shots at speculating a hash or a long string of digits.

The amount of energy needed by the computers to find it is referred to as the hash rate of the network.

If there is a drop in the hash rate due to any particular reason including fall in the prices of crypto coins or power cuts for example, the mining difficulty level is adjusted automatically.

This is done to ensure that the network cannot find a new winner earlier than the specific time interval, which is 10 minutes in the case of Bitcoin mining.

Each of these winners is then allowed to verify the transactions occurring on the blockchain network and, if successful, they are awarded with 6.25 freshly minted Bitcoin.

However, the profitability of this guessing game entirely depends on the amount of money spent by a mining facility in order to install the mining computers as well as for the electricity bills required to keep the machines running around the clock.

Most of this energy consumed by the PoW mining machines comes from power stations that mainly use coal to generate it.

The higher the price of the crypto coin, the more will the miner be interested to spend on electricity till the time when the cost of winning exceeds the amount of rewards.

When the price of Bitcoin falls, the financial inducement to waste energy on mining it typically tends to be lower.

In theory, this is a very good sign for the climate but, unfortunately and most surprisingly, the hash rate of the network along with the carbon footprint stays close to the all-time high of it.

Typically, it is found that when the price of Bitcoin rises, the average hash rate for mining the coin is about 200 quintillion hashes per second.

This, along with the constantly growing interest of mining Bitcoin, may seem to be profitable.

However, the question is for how long it will be sustainable and good for the climate.

The experts point out that the price of Bitcoin has dropped significantly below the projected cost of its production quite a number of times before but it was all very temporary.

Moreover, such drops in prices of Bitcoin did not have any significant effect or caused any notable damage to the hash rate in the long term.

However, the experts feel that if the crypto market stagnates for quite a long time, the PoW crypto coins will start to experience a significant increase in the number of miners giving in.

And, this number will continue to increase.

Experts also think that as and when the profitability percent drops down, the Bitcoin miners who have spent a lot of money will most probably tend to sell their holdings off.

This will create even a higher selling pressure in the market.

However, when it comes to the smaller mining units with a high cost that often use sporadic renewable energy the capitulation in the short term will be normal.

Still, the bigger crypto mining firms will create a domino effect and they may even close down one after another.

This will result in a rapid drop in the crypto prices as well as in the carbon emissions of the network almost close to zero.

This particular occurrence is called the Bitcoin death spiral in the crypto space.

There are also a few other potentially important points to consider apart from the price predicaments of Bitcoin mining to find out whether or not a crypto crash will put an end to the climate impact, experts say.

There are several big investors in crypto, especially those investors who have bought the coins at a much higher price, who will find themselves in deep waters in such a situation.

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This is mainly because of the high price of Bitcoin.

Take the example of Nayib Bukele, the president of El Salvador, who has reportedly brought as many as 2300 Bitcoin of late which is worth nearly US $72 million at the prevailing market prices.

This is the total reserve of the country but the crypto losses are creating concerns regarding an imminent debt default that the country is moving to.

This will create a lot of pain for those specific investors who practically had nothing to say or do about the gamble played by the country’s leader.

Looking at the broader aspect of it, the high-flying investors in Bitcoin may find bear markets to be a bore.

However, research shows that the losses and impacts caused to the environment due to the high-priced crypto coins such as Bitcoin are far more worrying.

This is because Bitcoin mining causes disproportionate damage which typically affects the poor and has a serious impact on the vulnerable communities.

The main reason behind this disproportionate effect is that the crypto developers as well as the mining outfits take the most advantage of the weak regulations surrounding crypto and its economic instability.

They also have easy access to cheaper energy sources.

This means that the locals who need these power sources to use for other productive purposes are priced out by the activities of the Bitcoin miners.

The crypto mining activities by them also creates a climate crisis which, once again, has a worse effect on these communities.

Governments all over the world were apprehensive about the prospects and potential of crypto and typically were reluctant to accept it in any form in the society for use.

However, over time, they seem to have changed their stance and seem to be keener now to accept and realize that crypto can be an important tool for economic growth.

Nevertheless the crash in the prices of crypto, especially Bitcoin, shows that it is useless to be considered as a mainstream mode of exchange and at the same time it is also not very reliable as a store of value.

Both these aspects of crypto bring in more pain and less profit to the users.

Considering all these aspects of Bitcoin and crypto mining, the experts believe that it is high time that the governments all over the world cracks down on crypto heavily now.

This will be a boon for everyone. It will relieve the users from the pain and at the same time will reduce the impacts caused to the climate due to excessive energy consumption and carbon emissions.

This is essentially required today considering the aftermath caused to the economy of the world due to COVID 19 and the infamous global financial crisis that the world experienced in 2008-2010.

Therefore, the economists, crypto market analysts and the experts believe that the governments worldwide should continue to crack down on the noxious financial instruments as they have promised.

They should also make some valuations regarding crypto and its climate impacts that are easy to believe and at the same time they must make sure that the global economy and climate both are stable.

However, the experts also warn that if these efforts and the environmental regulations on crypto mining are not well coordinated on a global scale and are not far-reaching enough, the rate of polluting the climate by crypto will keep on growing.

Conclusion

So, as this article points out there is no reason to believe that the climate impact due to crypto will decline or end with a market crash.

Therefore, crypto users, miners, regulators, and all participants should be careful about this serious danger to the environment and continue reducing emissions.