The hush over the so-called energy demands of cryptocurrencies is an issue of concern. However, the real cost of mining could be less draining on the environment than earlier expressed.
We live in a world where being environment-friendly (going green) is constantly praised as an ideal. Having accepted the need to preserve our environment, we expect any emerging technologies to adapt to this reality.
Bitcoin and the altcoins have been analyzed endlessly from this standpoint. While our de facto financial systems aren’t often studied and changes rarely demanded, society expects crypto to be better. Whether out of genuine concern or an agenda doesn’t matter – the battle cry is saving the environment.
Now, it’s easy to think of tokens and coins to be less green than fiat currency. After all, bills don’t consume electricity. They don’t require servers to run 24/7. They don’t need to contact anywhere for authentication. There’s absolutely no carbon footprint to buying a pint of beer at a local bar with cash, or is there?
Money Costs Money
It is easy to put bitcoin on the radar because it is still in its early days, while the effect of fiat currencies is not even evaluated. However, both payment methods actually leave a footprint, and this is factual.
These payment forms are truly impacting the environment, as this has been studied at length. Fiat legal tender has actual production costs – that is, every single bill or coin produced comes at a cost. There’s the material cost (i.e., the bill itself,) production costs (cutting, printing, etc.,) and transport costs.
On top of this, physical money has a lifespan. Bills don’t last forever, and in fact, lower-denomination bills tend to last much less than higher-denomination ones. Bills need to be rotated – that is, new ones printed, and old ones removed from the economy – regularly.
Old bills are usually pulped and incinerated, adding to the carbon footprint of fiat.
And then, since in most cases bills cost much less to produce than their actual value, inflation happens. Materials and other inputs for each dollar cost much less than a dollar, and value appears out of nowhere.
Inflation has been hailed by many economists as a necessary factor in the economy. A common argument states that inflation promotes spending, and spending promotes economic growth. This assumes that if money didn’t lose its value over time, people would hoard it rather than spend it. While this is true in cases of deflation, whether inflation is any good can be doubted.
There are other costs in our current-day economy we often ignore. For example, banks need to keep servers running 24/7, which comes at an energy cost. Just as well, ATMs run permanently and contain enough mechanical pieces to make their energy footprint visible.
In truth, the sole cost of maintaining our fiat economy is far bigger than most people believe. On the other hand, bitcoin trading has grown in leaps and bounds without a need for a huge infrastructure to be in place. By running on its blockchain, the existing capacity of linked computers is put to use.
The digital token as a fix
Although it might surprise some opponents of digital tokens, blockchain has been proposed as a solution to the woes of the fiat settlement system. While the mining of digital legal tender might be huge in impact, it has overall lesser costs than fiat. Bitcoin value today is in excess of it’s listing price years ago, check CoinReview for current Bitcoin Value.
Operating costs of properly developed tokens or digital coins are small in comparison to production and maintenance costs for the fiat alternative. Moreover, the altcoins come with enforced transparency. This makes it easier to judge their health, while also making it possible for external actors to audit them.
In truth, there are two big reasons why some naysayers say XRP and the likes can’t make it to the mainstream. Both of them, however, depending on interpretation. When somebody says the leading blockchain tokens aren’t green, they often show you only a part of the picture to make this statement.
Looking at the big picture, however, can reveal a reality that’s very different from what we’re being told.
Mining uses more electricity than small countries
This is the most common criticism of minable coins and tokens. Whether it’s correct or not can be argued, an article from reputable sources has appeared on both sides. Still, it can’t be denied that the mining process, as it is, wastes huge amounts of energy.
While mining does not necessarily define the emergence or creation of all digital payment solutions, some are not minable, and others avoid it. So, the argument against the electricity consumption aspect will only refer to the proof-of-work driven tokens. Those that adopt the proof-of-stake or alternative algorithm have lower energy consumption thresholds.
Lack of inflation will lead to stagnation
Since cryptocurrencies can’t be printed out of thin air to hide fiscal deficit, they don’t suffer inflation. In fact, all cryptocurrencies have a cap on how many units of said currency can exist at any given time.
This has led to naysayers stating they can’t work. They say people only spend money because of inflation. They also say spending creates a healthy economy.
The problem is, spending for the sake of spending is hardly green. Consumerism has been considered a threat to the environment as far back as 2004. More recent studies have upheld these beliefs. Every single thing we buy, after all, leaves a carbon footprint.
Being forced to constantly buy things because of inflation means buying more – which in turn means a higher carbon footprint. Perhaps, then, having a payment option that does not push us towards spending is a good thing. For example, with the bitcoin lightning network today, you can use your token balances when you want with no need to convert to fiat.
It’s still early to tell whether the altcoins and their ilk will remain green across the board. Blockchain has shown to be an amazingly malleable technology. At some point, companies known for damaging our environment, such as oil companies, might want to use it. The impact might yet be less environmental degradation, and this will be laudable.
As it is, the fact is that cryptocurrencies are, in general terms, greener than fiat currencies. Due to the physical, manufactured nature of fiat, and the inevitable inflation it carries, that’s not likely to change. Digital banking is the future of our economy, and the tokens and coins are here to drive it.