Tag Archives: BTC

The Not-so Green Side of Cryptocurrency – How Sustainable are Assets Such as Bitcoin?

The sustainability of Bitcoin (BTC) and similar crypto-assets has been under immense scrutiny of late, with Tesla CEO Elon Musk having made this a key talking point during the summer.

More specifically, Musk (who had previously invested heavily in BTC) spoke negatively about the asset’s lack of sustainability, announcing that Tesla would stop accepting the digital currency as payment for vehicles until “here’s confirmation of reasonable (~50%) clean energy usage by miners” with a positive future trend.

But just how sustainable is BTC’s mining process, and have miners already started to meet Musk’s demands? Here’s a breakdown of the current situation:

What Sustainability Issues Affect Crypto Assets? 

The mining process associated with BTC and similar crypto-assets is central to their decentralised nature, with secure and immutable transactions verified by “miners” who trying to solve mathematically complex problems.

Miners who successfully solve a particular issue essentially add a “block” to BTC’s underlying blockchain, while also receiving a real-time reward in the form of a finite number of coins (6.25).

This represents a tangible reward for the miner’s efforts, while the process itself is how new tokens are generated and introduced into circulation. At present, there are 18,821,387.00 BTC tokens currently in circulation, from a maximum supply of 21,000,000.

However, the complexity of each individual mathematical puzzle is incredibly high, requiring miners to invest in expensive hardware and consume large amounts of electricity when verifying blocks.

According to estimates from the University of Cambridge Bitcoin Electricity Consumption Index, the global BTC network currently consumes around 89 terawatt-hours of electricity annually.

This equates to the annual output of 23 coal-fired power plants, or close to what is consumed by the citizens of Finland on an annual basis.

Just How Sustainable are Cryptocurrencies?

These statistics make for stark reading, and they seem to highlight an inherent lack of sustainability in the crypto space while supporting Elon Musk’s demand for less energy-intensive mining processes.

However, many people have countered Musk’s claim, particularly his call for a greater emphasis on so-called “clean energy”.

More specifically, the Cambridge Centre for Alternative Finance estimates that 76% of all miners now use renewable energy sources as part of their mix. What’s more, CoinShares suggests that the total share of renewables in crypto mining is as high as 73%, while this percentage continues to inch higher on an annual basis.

Not only this, but second and third-generation blockchains have also introduced “Proof-of-Stake” (PoS) consensus algorithms to verify transactions and introduce new blocks.

This is diametrically opposed to BTC’s “Proof-of-Work” (PoW) model, which requires far higher levels of energy and is less sustainable over time.

So, there’s no doubt that people misunderstand just how sustainable crypto mining has become in recent times, and the consensus algorithms that are now widely used to minimise energy consumption.

Of course, there are also far less energy-intensive investment vehicles such as forex trading, so traders who are interested in building a sustainable portfolio have a number of viable options in the modern age.

Why is the Crypto Market so Volatile?

In many ways, the cryptocurrency market is a bundle of contradictions, with this borne out by the space’s current and historical capitalisation values.

More specifically, while the current crypto market capitalisation value of $1.39 trillion may appear impressive at first glance, we should remember that this number peaked above $2 trillion as recently as Bitcoin’s (BTC’s) price broke through the $60,000 barrier in mid-April.

This highlights the innate volatility that underpins the crypto space, but what causes this and how will this impact on the asset class going forward?

What are Cryptocurrency Assets so Volatile?

A further examination of Bitcoin’s recent price trajectory further highlights the volatility of the crypto space, particularly with BTC having achieved a record high valuation of $63,246.79 on April 16th, 2021.

To provide further context, a single BTC token was priced at just $29,333.61 on New Years’ Day, while it has subsequently fallen back to $33,117.75 as of July 24th.

So, having seen its price increase by more than 100% during Q1 of this year, BTC has shelved nearly 50% of its value in the three months since April 16th.

But what exactly is behind this volatility? Well, the main factor here is market sentiment and the varying perceptions of cryptocurrency (and especially BTC) as a viable store of value, while price points are also impacted by Bitcoin’s reputation as a method of value transfer.

In terms of the former, this refers to the ease with which an underlying asset can be useful in the future, either as a sellable item or a method of exchange.

These factors have played a key role in BTC’s rise and fall recently, as demand soared and cryptocurrencies emerged as potential safe-haven assets (which were largely immune from macroeconomic pressures) against the backdrop of the Covid pandemic in 2020.

Similarly, its decline has come as regulators have begun to crack down in China and Europe, while the often unfavourable opinions of influencers like Bill Gates and Elon Musk have undermined the perception of BTC as a store of value.

Is the Future Bright for the Crypto Market?

Of course, it can be argued that the recent crypto bear run simply represents a market correction, while the viability of BTC as an asset class can also be supported by its overall rise in value during the last 12 months.

For example, a BTC token was worth just $9,708.95 on July 26th, 2020, while it’s now priced at $34,014.62. So, despite its wild fluctuation in the intervening period, Bitcoin is now nearly four times more valuable than it was just one year ago.

What’s more, the wider demand remains high for crypto and BTC, especially with forex brokers like Tickmill now introducing digital assets for trading. Given this and the fact that Bitcoin retains a finite supply of 18.77 million, it’s clearly capable of maintaining an inflated price well in excess of $30,000 going forward.

This also increases liquidity and the ease with which BTC can be bought and sold, establishing it as an increasingly mainstream method of value transfer.

On a final note, we should consider the emergence of third-generation blockchains and how they continue to change the crypto marketplace.

More specifically, such networks are tackling long-standing issues like scalability and inflated transaction fees, increasing the likelihood of mainstream adoption rates and potentially minimising volatility in the longer term.