Whether Bitcoin is Worth Killing the Earth: The Relationship Between Blockchain Technology, the Environment and the Law

Grace Park and Annie Chou

August 18th, 2021

In recent years, cryptocurrency and blockchain technology have sat alongside other contentious topics such as the COVID-19 pandemic. More than 100 million people worldwide are now using cryptocurrencies - and a growing number of baby boomers and Gen Xers are becoming interested in Bitcoin and other tokens.[1]

Aside from the moral controversies raised by the cryptocurrency market, there is also an increasingly heated debate on its effects on the environment. Namely, the energy consumed in the process of blockchain "mining" and the energy consumed in the process of cryptocurrency [AC1] transactions.

How is the environment impacted by cryptocurrencies?

Cryptocurrencies, such as Bitcoin, use blockchain technology, a distributed ledger technology that is designed to record and documentate transactions involving a digital currency.[2] Every user in the network maintains a ledger, and each member must validate identical ledgers to protect against fraud and avoid the need for centralised authority.[3] While avoiding a centralised system promotes transparency, among other benefits, this is where the environmental issue arises.

Typically, blockchain technology harnesses huge computing power. As mentioned above, it relies on a vast decentralised network of computers. While one may freely buy and sell existing Bitcoins in the market, hundreds and thousands of Bitcoin "miners" need to use massive amounts of energy to create new coins. New coins are "mined" or brought into circulation through a process that involves using powerful computers to solve complex algorithms. ‘Proof of work’ is "a piece of data which [is] difficult (particularly costly and time-consuming) to produce so as to satisfy certain requirements."[4] For every Bitcoin transaction, hundreds to thousands of miners must participate in obtaining proof of work, which involves solving costly algorithms, using electricity, time, and expensive hardware to find a winning "nonce", which is a string of numbers that, when combined with the data of the transaction, hashes (hashes are a 32 character series of alphanumeric characters that are generated through an algorithm) to a value with the required difficulty.[5]

Data processing centres worldwide compile and submit records of transactions in a way that is acceptable to the system while also having to guess a random number. The first to submit the record and the correct number wins compensation in Bitcoin, while this record becomes the next block in the Blockchain. The idea is that the more computers that compete to maintain the Blockchain, the safer it becomes because anyone who might want to try and undermine the currency must control and operate at least as much computing power as the rest of the miners put together.[6] Essentially, this means that as Bitcoin gets more valuable, more people will join the network and the computing effort expended on creating and maintaining it, as well as the energy consumed,  inevitably increases.

The Effects of Cryptocurrency on the Environment

Although Blockchain is groundbreaking technology, many scholars worry that it is a flawed system that consumes an astounding amount of energy.

The University of Cambridge Centre for Alternative Finance (‘CCAF’) studies the business of cryptocurrencies, and it calculates that Bitcoin's total energy consumption as somewhere between 40 and 445 annualised terawatt-hours (‘TWh’), with a central estimate of about 130 TWh.[7] To better understand how massive this amount is on the scale,  Bitcoin's energy consumption is around ten times more than what the Google network consumes. It is also nearly equivalent to the energy consumed by the entire country of the Netherlands.

Source: BBC Article, ‘How Bitcoin's vast energy use could burst its bubble’

The most alarming figure is that the electricity used by Bitcoin miners overwhelmingly comes from polluting sources. Through surveying the Bitcoin network and its managers worldwide on their respective energy consumption, The CCAF discovered that about two-thirds are from fossil fuels.[8]

The question then arises: is Bitcoin worth killing the Earth for?

President Biden's top economic adviser described Bitcoin as "an extremely inefficient way to conduct transactions", and further states that "the amount of energy consumed in processing those transactions is staggering". Tim Berners-Lee, credited as the inventor of the World Wide Web, has gone so far as to describe "Bitcoin mining" as "one of the most fundamentally pointless ways of using energy." Some scholars have further argued that Bitcoin, along with other cryptocurrencies, do not fulfil any large societal needs. [9]

The energy requirements may be too strenuous on the environment to let this trend continue.

Irreplaceable and Crucial Benefits of Cryptocurrency?

In 2015, all United Nations (‘UN’) member states adopted Sustainable Development Goals (‘SDGs’) to be achieved by 2030.[10] In particular, Goal 7 is relevant, as the countries promised to make efforts "to ensure access to affordable, reliable, sustainable and modern energy for all."[11]

While many have proposed that banning the cryptocurrency and blockchain networks from entering our market is the most sustainable choice, the UN has persuasively identified several benefits that only this technology can achieve.

Specifically, cryptocurrencies and blockchain may be pivotal in advancing sustainable development and improving stewardship of the environment.[12]

The UN proposes that one of the most useful aspects of cryptocurrencies is transparency. As this technology is resistant to tampering and fraud, this attribute makes it a trusted and transparent record of transactions. This is particularly important in regions with weak institutions and high levels of corruption.[13] For instance, a pilot programme in Pakistan showed that it was possible for the World Food Programme (‘WFP’), the largest UN agency delivering humanitarian money, to get cash directly to beneficiaries securely and quickly without the need to go through a local bank.

United Nation Children’s Fund (‘UNICEF’) can receive, hold and disburse donations of cryptocurrencies and Bitcoin through its newly-established fund, a first for UN organisations.[14] The contributions go to open source technology to benefit children and youth worldwide, which was articulated as a "new and exciting venture" for the agency. Executive Director, Henrietta Fore, said in a statement that:

If digital economies have the potential to shape the lives of coming generations, it is important that we explore the opportunities they offer. That's why the creation of our Cryptocurrency Fund is a significant and welcome step forward in humanitarian and development work.[15] The contributions will be put toward the UNICEF Innovation Fund and a project aimed at getting schools across the world connected to the internet.

The Foundation Executive Director, Aya Miyaguchi, further stressed the ability of the Cryptofund to "improve access to basic needs, rights and resources.[16]

Even the potential of Blockchain technology in protecting the environment has been tested in many other projects. For instance, the United Nations Environmental Programme's (‘UNEP’) DTU Partnership (a collaboration between UNEP, the Technical University of Denmark, and the Danish Ministry of Foreign Affairs) have pinpointed three main areas where Blockchain can accelerate climate action: in transparency, climate finance, and clean energy markets.

Data on harmful greenhouse gas emissions in many countries, says the DTU Partnership, is incomplete and/or unreliable. Blockchain solutions could provide a transparent, trustworthy way to show how nations are taking action to reduce their impact on the climate.[17] Climate financing, which is essentially investments that contribute to slowing the rate of climate change, could be boosted if carbon markets are scaled up, allowing businesses and industries to transition to low carbon technologies.[18] Furthermore, Blockchain technology could be an important part of accelerating the implementation of renewable energy sources such as wind and solar. The DTU Partnership analyses that these sources are intermittent and decentralised, hence new forms of energy markets are needed by their nature. Tools using blockchain technology can help create these markets and make progress toward the end of our dependence on fossil fuels.[19]

What Role can International Environmental Law Play?

Despite the potential benefits, the huge energy consumption associated with the technology still remains a difficult problem that needs to be overcome. Many players in the industry have shown efforts and a strong desire to ensure that any energy consumed by the industry can one day become entirely carbon-free.

In April 2021, three important organisations (the Energy Web Foundation, Rocky Mountain Institute, and the Alliance for Innovative Regulations) formed the Crypto Climate Accord, which is supported by organisations spanning the climate, finance, NGO and energy sectors.[20] The Accord aims to "decarbonise the industry in record time" and achieve net-zero emissions in the global crypto industry by 2030.[21]

The UNEP seems optimistic about the cooperation of member states working together to resolve this issue. They suggest that international organisations should gather stakeholders to support the development of policy frameworks which facilitate innovation through Blockchain. It is imperative to evaluate and construct supporting policies, regulations and laws to support the evolution of blockchain-based business models.[22] It is also crucial for policy-makers and blockchain experts to communicate further on specific issues for mutual learning. Policy-makers, scientists, and blockchain developers can come together to improve environmental management operations such as; supply chain monitoring, energy transmissions, tracking emissions, carbon trading, or help to achieve Agenda 2030 and other multilateral environmental agreement targets.[23] This would eventually help countries shape an enabling environment that includes legislation, regulation, and governance for the meaningful utilisation of blockchain technology for societal and environmental benefits.

For now, it seems that there is much reluctance from countries to outright ban the usage of cryptocurrencies and strictly regulate the usage of blockchain technology. However, given the pro-active position the UN has taken regarding the issue, we can expect to see more focussed talks among member states.

"The UN should continue experimenting in the blockchain space", says Minang Acharya, one of the authors of a recent UNEP foresight brief on the applications of blockchain. "The more we experiment, the more we learn about the technology. This is likely to improve our UN-wide knowledge on blockchain, our understanding of the environmental and social implications of mining operations, and improve our chances of coping with any problems the technology may bring in the future".

It remains to be seen whether policy changes or international regulations can be swiftly implemented to prevent the rapidly growing use of cryptocurrencies from irrevocably damaging the environment.

[1] https://markets.businessinsider.com/news/currencies/crypto-users-pass-100-million-boomers-gen-x-bitcoin-btc-ethereum-2021-2

[2] https://www.investopedia.com/tech/forget-bitcoin-blockchain-future/

[3] ibid

[4] Bitcoin Mining Team, Everything you need to know about Bitcoin Mining, https://www.bitcoinmining.com/

[5] https://www.law.georgetown.edu/environmental-law-review/blog/with-great-power-comes-great-eco-responsibility-how-blockchain-is-bad-for-the-environment/

[6] https://www.bbc.com/news/science-environment-56215787

[7] https://www.law.georgetown.edu/environmental-law-review/blog/with-great-power-comes-great-eco-responsibility-how-blockchain-is-bad-for-the-environment/

[8] https://www.bbc.com/news/science-environment-56215787

[9] https://www.law.georgetown.edu/environmental-law-review/blog/with-great-power-comes-great-eco-responsibility-how-blockchain-is-bad-for-the-environment/

[10] U.N., Transforming our world: the 2030 Agenda for Sustainable Development, ¶ 3, U.N. Doc. A/RES/70/1 (Sep. 25, 2015).

[11] ibid

[12] https://news.un.org/en/story/2021/06/1094362

[13] ibid

[14] https://www.unicef.org/press-releases/unicef-launches-cryptocurrency-fund

[15] ibid

[16] Ibid.

[17] UNEP Blockchain Technology and Environmental Sustainability, Foresight Brief 019

[18] Ibid.

[19] ibid

[20] https://news.un.org/en/story/2021/06/1094362

[21] ibid

[22] ibid

[23] UNEP Blockchain Technology and Environmental Sustainability, Foresight Brief 019