Bitcoin’s latest rally to yet another all-time high north of $ 60,000 may have lost steam this week, but its meteoric rise since last year has rekindled concerns about Bitcoin’s toll on people and society. planet.
In the United States, the administration of President Joe Biden has expressed concerns about the role of bitcoin in money laundering, the potential fallout from financial speculation, and the environmental impact of bitcoin.
In China, where more than half of new Bitcoins are mined, the massive amounts of energy needed to do so are at odds with Beijing’s climate goals, leading to a crackdown by authorities.
Unlike fiat currencies (such as the US dollar, euro, or yen), Bitcoin is not controlled by a government or central bank and does not require an intermediary to verify transactions. It is, by design, decentralized.
Instead of a bank, transactions made with Bitcoins are verified by a global, decentralized network of computers (aka mining platforms) that rush to verify blocks of transactions to be added to Bitcoin’s blockchain – a ledger public. The winner is rewarded with new Bitcoins.
Mining rigs are made up of very powerful computers, sometimes in the thousands, that work in unison to solve complex mathematical problems. It takes a lot of energy.
Supporters of Bitcoin claim it is subject to an unfair standard, arguing that the vast financial systems that underpin fiat currencies consume far more resources than cryptocurrencies.
But that hasn’t stopped some governments from taking action to limit Bitcoin’s carbon footprint.
China is cracking
As part of the Paris climate agreement to stem global warming, China aims to become carbon neutral by 2060 and reach peaks in emissions by 2030 – targets that are increasingly colliding in addition to Bitcoin.
China accounts for around 65% of global Bitcoin mining, according to at the Cambridge Center for Alternative Finance.
The Inner Mongolia region – with its cheap energy – accounts for just over 8% of Bitcoin’s production. By comparison, the United States as a whole only produces and processes around 7% of the world’s Bitcoin.
Earlier this month, the regional government of Inner Mongolia announced plans to halt all further mining of cryptocurrency and shut down existing operations in a bid to limit emissions from coal-fired power plants.
The huge autonomous zone adjacent to the Mongolian nation failed to meet central government emissions targets in 2019, prompting the region’s development commission to put the kibosh on crypto-mining by the next. end of April 2021. This decision would have led the miners to relocate their farms elsewhere in China, where climate-friendly hydropower often dominates.
Meanwhile, Chinese Bitcoin miners were looking to reduce electricity costs and regulatory burdens, moving even further to countries like Russia, Kazakhstan, Malaysia, and Iran – which are the biggest countries. Bitcoin miners after China and the United States. Forkast, an Asian tech news site, reports that the websites of several major Chinese mining pools list farms in those countries.
While Beijing’s official attitude towards the country’s Bitcoin dominance is somewhat ambivalent, in recent years it has intermittently cracked down on initial coin offerings for cryptocurrencies and the exchanges that trade them. .
Capital flight is an activity that officials are trying to control. China has strict capital controls, but unregulated capital flight out of China through digital assets reached $ 17.5 billion last year, according to at blockchain security company PeckShield.
Last August, research from Chainalysis suggested that around $ 50 billion in cryptoassets had left China in the previous year, of which $ 18 billion was the relatively stable Tether cryptocurrency.
Stephen Diehl, a UK-based software engineer who researches Bitcoin, told Al Jazeera that people in China – whether they are engaged in laundering money illegally earned by gangs or are simply seeking to avoid the 80,000 renminbi ($ 12,258) limit on currency outflows – can also bypass the restrictions by converting the cryptocurrencies into British pounds or Japanese yen which they can then take freely abroad.
“Beijing has declared a lot of this as ‘unwanted activity’ and ‘non-harmonious money’ in its official statements,” Diehl said of the app that combines anti-money laundering rules with restrictions general financial. “And it’s really not in their geopolitical interest to let nationals move so much BTC [Bitcoin] Out of the country.”
“It’s just sort of just reaching the price value where it becomes a bit of a thorn in their side,” Diehl added. “Thus, the repression in [Inner] Mongolia.”
Chinese cryptocurrency exchanges such as Binance, Huobi and MXC are often the provinces of money launderers, according to a July 2020 report by the Financial Action Task Force (FATF) – an intergovernmental body that works to promote standards against organized crime, corruption and terrorism. “.
The FATF helps address the growing risks posed by virtual assets, which can include regulatory, climate and reputational threats.
Other ESG concerns
Almost 36% of Bitcoin mining globally takes place in China’s Xinjiang region, according to the Cambridge Center for Alternative Finance.
Xinjiang is where the United Nations and other rights groups say more than a million minority Uyghur Muslims have been held in internment camps. The United States and other governments have called China’s treatment of Uyghurs genocide – an accusation Beijing denies, saying the internment camps are vocational training centers to combat “extremism.”
Tim Swanson, head of market intelligence for Clearmatics, a company that designs decentralized financing protocols, highlights another negative point: the amount of carbon produced by crypto-mining operations in China relative to the economic growth that ‘they generate.
“Coin miners have essentially added the value of a province’s electricity consumption without adding the value of a province’s economic output, so Bitcoin mining is actually a net drag on the economy as a whole, ”Swanson told Al Jazeera. “And the profits from mining are probably only going to a few thousand people, such as mining manufacturers, mining farm operators and their stakeholders.”
Swanson sees no benefit for China or any other country to encourage any kind of proof-of-work mining – the form of digital currency creation that provides the security of the blockchain network but requires huge energy inputs for it. distributed community based on consensus.
A major alternative to proof of work (PoW) mining is called Proof of Stake (PoS), which has been successfully implemented in dozens of other blockchains.
“There’s no need to burn or consume energy at the size or scale of proof-of-work blockchains like Bitcoin,” Swanson said. “Ethereum is trying to make that transition from PoW to PoS this year.”
‘Orders of magnitude are better’
With a market capitalization north of $ 200 billion, Ethereum is the second largest cryptocurrency. Nano, a much smaller cryptocurrency with a market cap of around $ 660 million, already uses PoS and relies on an algorithm called Open Representative Voting.
Nano supporters argue that it is better for the environment and more ethical than Bitcoin. Many Nano investors initially bought Bitcoin but were put off by the high energy consumption, the pollution problem, and the moral dilemma in China and other non-democracies.
“Centralization in any geographic or political region is a concern,” Colin LeMahieu, founder of Nano, told Al Jazeera. “For a currency to be truly global, no particular region needs to be in control.”
Nano hopes to supplant Bitcoin as a more sustainable cryptocurrency through legislation, regulation and climate advocacy. But Nano fans also know that mining cartels in China are leery of threats to Bitcoin’s dominance.
Srikar Srinivasula is one such entrepreneur and decentralized money enthusiast in Vijayawada, India. He wrote on Twitter earlier this month: “Of course #Bitcoin is awesome, Bitcoin is a scary revolution, no one is backing it, but it has flaws that need to be fixed, and it looks like it can’t. not solve its problems, $ NANO solves it, so I like this new form of #Bitcoin more. “
Of course #Bitcoin is awesome, Bitcoin is a scary revolution, no one is backing it, but it has some flaws that need to be fixed, and it looks like it can’t fix its problems, $ NANO solves it, so I love this new form of #Bitcoin After…
– Srikar Srinivasula (@srikar_tech) March 1, 2021
A Nano booster, Patrick Luberus, retorts that his favorite altcoin is the “fastest cryptocurrency” and only uses 10,000th of a kilowatt hour per transaction, compared to 600 kilowatt hours per Bitcoin transaction.
“I am very interested in the qualities of Bitcoin: decentralization, self-sovereignty, limited inflation, resistance to censorship, peer-to-peer payments without intermediaries,” Luberus told Al Jazeera. “This is one of the reasons I started looking for alternatives that share and enhance the fundamental properties of Bitcoin, but without the massive energy footprint.”
“We already have Bitcoin alternatives that are orders of magnitude better in almost every way,” he added. “But a lot of people don’t know them.”
China, for its part, wants to focus on rolling out its central bank digital currency, the eCNY, which would give Beijing more control over financial transactions, tax taxation and political dissent. Meanwhile, the United States is far from issuing its own fiat digital currency, but wants to prevent crypto from becoming a safe haven for money launderers.