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The Price of Speculation: Cryptocurrencies and Climate Change

Cryptocurrencies, Speculation, and Climate Change

Operating a cryptocurrency exchange system is a highly computationally intensive activity. It requires massive levels of energy consumption—roughly equal to countries such as Angola, Iceland, or Cuba—with a correspondingly high level of CO2 emissions. PERI researchers Izaura Solipa and Gerald Epstein examine the impact of Bitcoin and other cryptocurrencies on both energy levels and the environment, arguing that, at present, cryptocurrencies are creating significant environmental costs without any clear social or economic benefit stemming from this largely speculative activity. They then outline alternative applications of the underlying blockchain technology that could rather advance climate change mitigation programs.

Abstract

Cryptocurrencies are a form of digital currency whose popularity has rapidly increased over the past decade. What distinguishes them from other electronic currencies is their underlying technology known as the blockchain, a decentralized public ledger in which transactions among the network peers are accurately and securely recorded. The validation and mining process, where new coins are issued, is highly computationally intensive and thus requires vast amounts of energy. The literature estimates energy consumption levels of the cryptocurrency mining to be as high as those of countries such as Angola, Iceland or Cuba, and a corresponding emission of at least 3-15 million tons of CO2. We discuss these estimated impacts of Bitcoin and other cryptocurrencies on both energy levels and the environment, and then outline alternative applications that could promote climate change mitigation. We argue that despite the latter applications and the possible benefits from the technology, particularly in the energy sector, the financial uses of blockchain are creating significant environmental costs without any clear social or economic benefit stemming from this largely speculative activity.

New Book

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Busting the Bankers' Club: Finance for the Rest of Us

By Gerald Epstein
An eye-opening account of the failures of our financial system, the sources of its staying power, and the path to meaningful economic reform.

January 2024
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