BLAST FROM THE PAST: BITCOIN (Part 2)
As we have read in the first part of the series, Bitcoin can be described as ‘cash with wings’. In the years following 2018, we can say that these wings have allowed it to soar to much greater heights, which were beyond most expectations. The question now is if these records will reach new peaks or will this “bubble” just end up bursting? For the rest of the story, stick with us as we go on this journey of Bitcoin’s history.
2019: We can say that 2019 definitely proved to be a promising year for Bitcoin investors. Very few people had any kind of optimism left for Bitcoin to re-emerge from its slumber that was called the ‘Crypto Winter’ in 2018. In the first six months of this year, Bitcoin enjoyed sharp gains, rising more than 200% as a result of multiple factors that have changed the way people are looking at digital money. The cryptocurrency, which started in 2019 at below $4,000, climbed to nearly $14,000 in late June, according to CoinDesk data. One major factor was the hype surrounding ‘Libra’, which is the cryptocurrency that social media giant Facebook had announced to release. Facebook has 2.4 billion active users that had all been introduced to the whole concept of digital wallets.
2020: By the end of this very long year, Bitcoin had surged past $29,000 to reach yet another impressive record level. Despite the global coronavirus pandemic, Bitcoin had almost quadrupled in value! During this period, a Bitcoin was priced over 21 lakh in Indian rupees. One significant factor was (and continues to be) the central bank policy during the pandemic shutdown. Many Bitcoin advocates and investors stated that the pandemic-hit year had offered a perfect environment for the cryptocurrency.
2021: This year is unparalleled in the history of Bitcoin and for other cryptocurrencies like Dogecoin and Ethereum too. In January, Bitcoin touched $40,000. In February, it was announced that Tesla had invested $1.5 billion in Bitcoin. As a result, there was a huge spike, and the value reached $50,000. The following new peak came in March when Elon Musk tweeted that anyone can buy a Tesla car using Bitcoin. As the popularity of Bitcoin skyrocketed, so do the prices — Bitcoin had reached an all-time high of $64,829.14 (roughly Rs. 43 lakhs) on the 14th of April!! Also its value, as the supply is dwindling, is expected to increase and even exceed $100,000 by end of 2021.
What about other cryptocurrencies?
Time and again, it has been proved that Musk’s tweets influence the values of popular cryptocurrencies like Bitcoin, Ethererum, and Dogecoin. In February, there was a series of tweets by Musk, hailing Dogecoin, that took the value of the meme-based cryptocurrency to wild levels. Dogecoin’s value grew by around 216 % to $0.023535, and peaked at $0.738255. The digital coin quickly grew to become one of the most popular cryptocurrencies available, not necessarily for its price but for its overall growth. It’s ironic to see that what started out as a parody, now has a market worth of over $1 billion!
Ethereum has a market capitalization of around $465 billion compared with $959 billion for Bitcoin. Throughout April 2021, Ethereum price kept increasing and at one point, reaching over $2,500 in the U.S. According to CoinMarketCap, the price of Ethereum has zoomed over 16 times from $206 as of May 2020 to $3,465 as of May 2021. Over these years and at present, there is much focus on the energy consumption of Bitcoin and its effects on our surroundings. Let’s now dive into what this is all about.
What’s all the debate about the impact of Bitcoin on the environment?
When asked about Bitcoin, Bill Gates has said, “Bitcoin uses more electricity per transaction than any other method known to mankind, and so it’s not a great climate thing.” As many individual and institutional investors continue to adopt Bitcoin, one primary concern that has come up is its connection to climate change and energy. According to the Digiconomist, a single transaction of bitcoin has almost the same carbon footprint as 680,000 Visa transactions or as 51,210 hours of binge-watching YouTube. To understand this, we must know what Bitcoin mining actually is and what the different views on its consequences are.
What is ‘Bitcoin mining’?
The term ‘Bitcoin mining’ is obviously purely metaphorical, but it’s quite interesting to know that its impact is almost as disastrous as the actual mining process. Mining is the operation by which Bitcoin is both created and accounted for. For example, instead of being cleared by a bank for currency, Bitcoin transactions are recorded by a blockchain — which is a decentralized network. Miners compete to register the latest “block” of transactions by solving cryptographic puzzles. The first one to solve it is rewarded with freshly minted bitcoin. At first, average computers could solve the algorithms, but as the complexity increased, they could no longer keep up. There was the need for special computers with immense processing power. These require a lot of electricity — around 121 terawatts annually, equivalent to the annual carbon footprint of Argentina!
Different views on the environmental impact of Bitcoin —
As there are always two sides to a story, many arguments are proving that Bitcoin is really not the environmental catastrophe that everyone is claiming it to be. Bitcoin supporters have downplayed the energy consumptions of cryptocurrency. Research by ARK Investment Management has found that the Bitcoin industry consumes less than 10% of the energy required for the traditional banking system. So if we were to make an overall comparison, we could say that the cryptocurrency ecosystem is more energy efficient. On the other side of the debate, environmentalists say that mining is still a cause for concern, particularly because miners try to use the cheapest forms of electricity, and that may mean places that use coal.
So, in conclusion, whether you stand in favour of the cryptocurrency or not, there’s little doubt that Bitcoin and blockchain use vast amounts of energy. Most of this energy usage comes from burning coal and other fossil fuels, although cryptocurrency advocates have stated that renewable sources are also a significant component. With the impact of the climate crisis worsening, I believe the real burning question now is — ‘We know that progress comes at a price, but should that be at the expense of our environment?’
Happy reading! And stay tuned for the final chapter of this crypto journey!!
Credit : Javali Murari — Team E-Cell ABV-IIITM Gwalior
