Essay by Eric Worrall
Cryptocurrency, which until recently gained support from anarchist money advocates in California, is increasingly seen as a climate villain.
Cryptocurrency price crash offers hope of slowing climate change – here’s how
Published: May 18, 2022 1.16 am AEST Updated: May 18, 2022 2.41 am AEST
Senior Lecturer in International Development, Northumbria University, Newcastle
For years, interest rates have been near zero, making bank bonds and treasury bills look boring as investments, while cryptocurrencies and digital non-fungible token (or NFT) is associated with artwork, looks attractive. However, the US Federal Reserve and the Bank of England recently interest rate increase with the largest number since 2000.
The most polluting “proof-of-work” cryptocurrencies, like bitcoin, ethereum, and dogecoin, together use around 300 terawatt-hours (TW/h) mainly electricity from fossil fuels each year. Bitcoin has an annual carbon footprint of about 114 million tons. That number is almost equivalent to 380,000 space rocket launchor the annual carbon emissions of the Czech Republic.
Proof-of-work mining can be seen as a controlled waste of energy. This process involves specialized computers that continuously take random pictures to guess a long sequence of digits. The amount of computing power dedicated to this effort is known as the network’s hash rate.
Limit point and death spiral
Miners with the highest costs will likely sell off their bitcoin holdings as profits drop, creating more selling pressure in the market. Short-term investments among smaller, high-cost mining pools (often using intermittent renewable energy) are common.
But a domino effect with the major miners shutting down one by one could cause the cryptocurrency price and the network’s carbon footprint to drop rapidly to zero. This event is called a bitcoin death spiral say in cryptocurrency.
It’s obviously interesting that green women are finally getting tired of their anarchist currency, which consumes more coal energy than a small country.
But what is the real reason for Bitcoin’s recent drop in price?
My theory is that Bitcoin’s fortunes are driven by China.
Chinese businessmen a few years ago discovered They can use Bitcoin to bypass China’s strict currency controls.
Basically, Bitcoin works like the Middle Ages Hawaiian banking system. If you want to transport money to or from a distant, lawless hell, carrying around a large bag of money couldn’t be more ideal. So you contact an intermediary who gives you a secret token, like a torn dollar bill. A reliable courier will deliver the other half of the torn note to your destination. If you or your courier get stuck on the road – even a vandal can overlook something as seemingly worthless as a torn dollar bill. Then, when you bring the torn dollar token to the middleman contact at your destination and they match it with the other half, they pay you, minus a processing fee.
Given the two-way cash flow with more or less balance, no actual physical money has to be transported between the two banks, but the transfer still happens.
Bitcoin works in a similar way to that torn dollar bill – you can exchange goods or cash for Bitcoin, then convert the Bitcoins back into cash, in a different location. Like a dollar bill torn from the Hawala system, Bitcoin may have no intrinsic value, but it can still function as a carrier of value.
So what happened? The Chinese government realizes that people are flouting their laws, they hate that money is flowing in and out of China without government oversight. So over the past few years, China has cracked down on Bitcoin users. But Bitcoin use is difficult to detect, so the crackdown has been less effective than most Chinese enforcement efforts.
A much bigger problem is China may be running out of money. A fraction of China’s insane GDP until recently was spent building the “Ghost City”. Speculative frenzy drives demand for investment properties, even when no one is in new properties. Huge Chinese savings are tied up in worthless, dilapidated real estate investments. A significant portion of the Chinese economy has been spent building these worthless real estate.
Until the end of last year, generations of people in China considered housing investment a surefire bet. The grandparents who had cashed in on China’s housing bubble urged their grandfathers to invest in the same bubble – they both thought they couldn’t lose.
The Chinese are no fools, some of them realize that investing everything in a single housing bubble is risky. Some Chinese investors want to move profits out of China to diversify their portfolios. But sending large sums of money abroad is illegal for ordinary Chinese investors — so they used the modern digital form of that Hawala torn dollar bill, Bitcoin, to facilitate transfers and bypass China’s currency controls.
Now Evergrande Crisis All but the decades-long Chinese housing bubble, and the shutdowns that dumped the real economy, there is hardly anyone making money speculating in China anymore.
I don’t think this is the end of the road for Cryptocurrencies, someone will always need a way to bypass government currency controls, regardless of the environmental costs of using”proof of work“, Or other weird variations like“proof of space“. And I have no advice on which way the prices of different cryptocurrencies will go next – there are many other factors that drive crypto prices and not all of them show up. But if I am correct, it is possible that China’s fortunes, up or down, could be the main driver of Crypto price movements over the next few years.