The Banking Executive Magazine - November 2022 Issue

Cryptocurrency transactions, thereby adding a newly verified block, containing all of those transactions, to the chain. And the winner is granted a predetermined amount of newly minted bitcoin. Beyond releasing new coins into cir- culation, mining is central to the se- curity of Bitcoin (and many other cryptocurrencies). It verifies and se- cures the blockchain, which allows cryptocurrencies to function as a peer-to-peer decentralized network without any need for oversight from a third party. And it creates the incen- tive for miners to contribute their computing power to the network. According to CNBC news, the United States White House Office of Science and Technology Policy warned that cryptocurrency mining operations could hinder the ability to mitigate climate change. The United States White House produced a re- port in response to President Joe Biden’s executive order that called on the government to examine the risks and benefits of cryptocurren- cies. The report analyzed climate and energy implications of crypto as- sets in the United States. According to the report, crypto operations in the United States now consume as much energy as all home computers or all residential lighting. Mining cryptocurrency produces planet-warming emissions primarily by burning coal, natural gas and other fossil fuels to generate electric- ity. The United States White House re- port also revealed that in 2022, crypto mining produced between 110 and 170 million metric tons on carbon pollution across the world and roughly 25 to 50 million metric tons in the United States alone. The process produces electricity by pur- chasing it from the power grid or by producing and disposing of comput- ers and mining infrastructure. According to the report, the global crypto mining emissions are greater than the emissions of many individ- ual countries and equivalent to the global emissions from all barges, tankers and other ships on inland waterways. Additionally, Bitcoin, the world’s largest digital currency by market value, generates approxi- mately two-thirds of global crypto greenhouse gas emissions. SCALE OF BITCOIN DAMAGE TO CLIMATE The Smithsonian Magazine pointed out that bitcoin could rival beef or crude oil in environmental impact. Carbon emissions from mining one coin increased 126-fold from 2016 to 2021. Using the social cost of car- bon, a common metric to gauge the financial damages caused by the greenhouse gas, the climate cost of Bitcoin is calculated. On average, it is found that for each dollar in bit- coin value produced, the process re- sulted in 35 cents in global climate damages (equivalent to 35 percent of its market value). In comparison, beef’s climate damages stand at 33 percent of its market value, and dam- ages from gasoline produced from crude oil stand at 41 percent. In May 2020, Bitcoin’s damages peaked at 156 percent of coin price. CRYPTO CURRENCY ELECTRICITY CONSUMPTION The Cambridge University Bitcoin Electricity Consumption Index (CBECI) provides an up-to-date esti- mate of the Bitcoin network’s daily electricity load. The underlying techno-economic model is based on a bottom-up approach that uses the profitability threshold of different types of mining equipment as the starting point. the BANKING EXECUTIVE 32 ISSUE 167 NOVEMBER 2022