Cryptocurrency and especially NFTs (like “crypto art”) are the trendy new thing to talk about right now, and it makes sense: their power to change the world is tremendous. Of course, by “the world” I mean its climate, and I didn’t say it was a positive change.
But why? I’ve noticed a lot of people are hesitant to join the bandwagon after hearing the outcry over the environment, without quite understanding the problem. There’s a vague sense that “securing the blockchain uses a lot of energy,” but why does it have to be that way?
There’s No Such Thing as a Bitcoin
“A Bitcoin” is not a thing. It’s not a file on your computer–files can be easily copied, so that would be far too easy to counterfeit. So how can we create non-counterfeitable money on computers, where everything is copyable?
Instead of “containing” bitcoins, a cryptocurrency account is the sum of all the transactions in and out of it. Just like at your bank: if you deposit a check, they don’t go add that many dollar bills to a vault somewhere. They just make a note in their ledger. When you withdraw money, they check their ledger and make sure you have enough money.
Who Keeps the Ledger?
At your bank, it’s easy: the bank keeps the ledger. If you deposit a check from a different bank, the banks coordinate through a clearinghouse. You trust your bank not to steal your money because it would be illegal and they’d lose customers. (Or maybe you don’t trust your bank, and that’s why you’re interested in cryptocurrency).
In a decentralized, “trustless” currency–which is the goal of cryptocurrency–there are no banks or clearinghouses because you’d have to trust them. Who keeps track, then, of how much money you have? Who decides whether your check bounces? Who do you trust not to cheat if you don’t trust anyone?
You Can’t Trust Anyone, But You Can Trust Everyone
The goal is to build consensus on what constitutes the “official” ledger–the official list of every check that’s been sent and what everyone’s account balance is. The original and most common way to do this is called proof of work.
The central idea is this: producing the ledger is designed to take a lot of computing power, and the official version of the ledger is the one that took the most computing power to produce. It’s rule by majority. If you wanted to cheat–say, erase a check you already sent so you can spend that money again–you’d have to make your counterfeit ledger the official one. That would require more computers than the rest of Bitcoin combined. And if you have the resources to do that, you probably have little to gain by cheating.
Providing the computing power to produce the official ledger can also be profitable because it’s how new Bitcoin is mined. That ensures there’s always people willing to build the ledger.
And that brings us to why mining cryptocurrency is inefficient. The system rewards miners for their work, but that “work” is to waste computers on tasks that use a lot of energy, for the sole purpose of preventing someone else from cheating by using up even more energy.
Inefficiency is Treated Like a Solution, Not Like a Problem
If you take anything away from this post, it’s this. Cryptocurrency treats inefficiency like a solution, not like a problem. It’s inefficient because it’s designed to be. The energy usage is not a byproduct or defect. It’s a feature, not a bug.
Systems that not only allow, but encourage and depend on such vast depths of senseless wastefulness are not systems we should be supporting.
- Proof of work isn’t the only way cryptocurrencies can be secured, but it’s the most common. There’s also proof of stake, which doesn’t depend on inefficiency, but it’s a newer technology and it’s not widely used yet.
- I’m in no way claiming the environmental impact is the only problem with cryptocurrency. It’s just the one that affects me even as a non-cryptocurrency-user.