What are cryptocurrencies and how much energy they consume

A summary of everything you need to know about cryptocurrencies.What they are, how much energy they consume and why the energy transition also serves to avoid another climate risk.

It was 2008 when the mysterious Satoshi Nakamoto, a Japanese man whose identity was never ascertained, invented the first cryptocurrency to the world:The bitcoin.An idea that, in the space of a few years, had a sensational and global success.Only ten years later did the digital currency market reach 110 billion dollars:a value comparable to the gross domestic product of a nation like the Morocco. 

The meaning of the word cryptocurrency

Today there are thousands of cryptocurrencies.What is the meaning of this word?Cryptocurrency is the Italian transposition of the English term cryptocurrency, in turn deriving from cryptography (encryption) And currency (currency).

List of the most popular cryptocurrencies in the world, from bitcoin to ethereum

In addition to bitcoin, the list of the most popular cryptocurrencies includes ethereum, tether, binance coin or even dogecoin and it shiba inu.These are payment instruments based not on control by a state, that is, by a central bank which monitors fluctuations and physically prints banknotes, but on cryptography.The latter, in fact, allows a network of people to "join forces" to generate money and make it circulate.But it is unable to stop unbridled speculation, which generates gigantic (and often sudden) ups and downs in the value of the cryptocurrencies themselves.

"When from the baker we pay with our card ATM 1 euro for a loaf of bread – explains the newspaper specializing in ethical finance Valori.it – all we do is send a message to ours bank.Giving the order to transfer a certain sum from ours current account to that of the baker.On the register connected to our account it will be marked '-1 euro' while on the baker's register '+1 euro'.In this kind of transactions the banks act as guarantors.Since they monitor and update the databases where the current account balances of all citizens are recorded".

What is blockchain and how does it work

Bitcoin was invented to carry out this same type of transaction without needing thebank intermediation.The databases of the latter are replaced by a ledger:a register of all transactions, continuously updated by a network of tens of thousands of computers around the world.Problem:banks do not just provide the service, but also supervise in order to avoid scams.Who takes care of it in the case of cryptocurrencies?To ensure the traceability and transaction security, digital currencies are based on a technology called blockchain. 

The literal translation is “block chains”.This is, in fact, the ledger (register) shared by all those who contribute to generating cryptocurrencies (the so-called mining) and manage its transactions.To ensure the functioning of blockchains, immense computing capacity is required.For this it is necessary to network hundreds of thousands of computers.And this is why the so-called were born bitcoin “factories” & co.Whose energy consumption has literally exploded over the last few years.

These are places, mainly warehouses or even hangars, in which thousands of servers they work together, stacked on top of each other, day and night, 24 hours a day, non-stop.We will ask ourselves:why this rush to mining?Because cryptography is like a puzzle to which the solution can be found through calculations.And whoever does it first gets one reward in the blockchain system (paid, obviously, in cryptocurrency). 

What is mining, the "creation" of cryptocurrencies

The French business newspaper Les Echos visited a bitcoin factory in China and explained the system particularly effectively:"THE computer They aim to solve encryption problems.It's a bit like trying billions of combinations of a safe.The miner who succeeds in doing so unlocks the lock in the shortest possible time."To better understand the process you can imagine that a miner is a person who plays dice in a casino.A die with a thousand faces:you are not, thousand.To win he must roll a number lower than 10, so his chances of winning on the first try are very low.For this he rolls the dice as quickly as possible and, despite this, it will take him a long time to succeed in the business.

But if there are many people rolling the dice, many "miners", the duration of a single game becomes shorter because it is statistically more likely to achieve the objective of rolling a number lower than 10.And when it happens all other players control that it is true:this is how the system guarantees its reliability even in the absence of a central controller.The winner takes the prize and another round, another game, can begin.

What does climate impact have to do with cryptocurrencies?

Up to this point the system does not create problems, on the contrary.It's an innovation.Blockchain technology, applied to other sectors, can in fact guarantee "bottom-up" and "widespread" control.The problem, in the case of cryptocurrencies, is its extremely intensive use.One of the themes that create discussion is, in this sense, the impact environmental:it was calculated several times, and the data is impressive. In 2018 the portal Digiconomist, specialized in cryptocurrencies, explained that the energy they normally consume was used for the functioning of bitcoin alone 10 million European citizens in one year.More than that of the entire population of a country like Chile.But four years ago cryptocurrencies were much less widespread than today.Not surprisingly, the Cambridge bitcoin electricity consumption index (Cbeci) estimated in 2021 that the annual consumption of bitcoin alone could be 128 terawatt hours.Let's talk about 0.6 percent of global electricity production, equal to the absorption of a rich nation like Norway.For comparison, in 2019 a digital giant like Google it had consumed “only” 12.2 terawatt hours.

All this is aggravated by the fact that in many cases the countries in which the mining I am developing economies.In which electricity production is still heavily based on fossil sources.Second an analysis by New Scientist, bitcoin-related CO2 emissions could soon exceed those of some European nations.The British science magazine mentions this a study that appeared in Nature Communications and directed by Guan Dabo, professor of climate change economics at Tsinghua University in Beijing. 

The scholar has in fact calculated the overall impact in terms of greenhouse gas emissions mining of bitcoin, claiming that it will reach China i 130 million tons of CO2 in 2024.A figure higher than what Italy disperses into the atmosphere every year.  The trend was also confirmed by another study, published once again by Nature, according to which cryptocurrency "factories" risk compromise climate goals that China has established itself.Starting from zero net greenhouse gas emissions by 2060. 

Suffice it to say that the entire process of creating and selling bitcoins consumes more 90 terawatt hours of electricity per year.More than a country with 5.5 million inhabitants, like Finland, consumes.All reasons that lead this activity to take root in countries, such as Kazakhstan, where energy is cheap, causing an increase in prices.

Finally there is the theme of electrical and electronic waste.To increase the speed of "dice games", i.e. the speed with which bitcoins are extracted, the turnover of computers is frenetic, so much so as to cause problems with their disposal.According to an economist's calculation contacted by the New York Times, Alex de Vries, the power needed to mine cryptocurrency doubles approximately every year and a half, making it necessary to replace the machines.

From China to Kazakhstan, the geography of cryptocurrencies

Damage to the climate is one of the reasons that drove the entrepreneur and visionary Elon Musk, personality of 2021 according to Time, to backtrack and no longer accept bitcoin for the purchase of his electric cars, the Tesla.This is due to concern "about the rapid increase in the use of fossil fuels in extraction and transactions" related to cryptocurrency.

But, above all, it is the governments that are moving.In mid-2021, China decided to operate a crackdown on mining, blocking all activities in Sichuan province, where numerous factories are concentrated.The measure follows that of 2017, which decreed a prohibition throughout the national territory.Which, however, was followed wide tolerance by the authorities.A choice similar to that made by two other nations, the Kosovo And Iran, which in the face of continuous blackouts they decided to ban the creation of bitcoin. 

Still in China, the stop to activities was also decided in Qinghai, in Inner Mongolia.Result:China's ability to contribute to mining has been reduced by 90 percent, according to the Global Times.So, many have decided to move elsewhere.And one of the nations that welcomed bitcoin factories It's Kazakhstan:a paradox, given the serious energy crisis which crosses the former Soviet republic.And that I am causing, in turn, a profound political crisis, with riots popular and the intervention of troops sent from Moscow at the request of Kazakh President Qasym-Jomart Toqaev. "There electricity demand increased in 2021 by 8 percent in Kazakhstan – explains the Uzbek website Kun, reportedly from Courrier International –, compared to a usual growth of 2 percent".This is precisely because of “the massive transfer of miners from China”, especially starting from the month of September.

Which confirms that, in any case, the issue must be addressed on a scale global.Because emissions, whether they come from China, Iran or Kazakhstan, end up in the Earth's atmosphere in any case.A study by the World Inequality Database indicated that, from the pre-industrial period to today, 2,500 billion tons of CO2 have been dispersed.If we want to limit the growth of global average temperature at a maximum of 1.5 degrees centigrade between now and the end of the century, we can still afford to waste, at most, 300 billion tons.At the current rate, according to the analysis, we will exhaust the "bonus" between now and 2028.