ENVIRONMENTAL IMPACT OF CRYPTOCURRENCY IN DEVELOPING COUNTRIES (BY-ANJALI AGARWAL)
Environmental impact of cryptocurrency in developing countries
Authored
By-Anjali Agarwal
Table Of Contents
Abstract
Since the inception of cryptocurrency,
a long road has been traveled. Previously dismissed as tools for criminals and
speculators, the industry has made significant progress towards establishing
itself as a legitimate and (potentially) game-changing space. While bitcoin and
Ether have seen tremendous price and user growth, there are still concerns
about the long-term implications of widespread use. Numerous skeptics and
environmentalists express concern about cryptocurrency mining’s high energy
consumption, which they believe will result in increased carbon emissions and,
consequently, climate change. This paper takes a look at the environmental
impact of the well-known cryptocurrency in developing countries.
Introduction
Before coming on the topic of Bitcoin
or Cryptocurrency, it is important to know the existence of money and how it is
trusted by people as an exchange of value. Money represents value. It is given
in exchange of something and it passes on in exchange of things to other
person. But to believe in these transactions, there should be a trust in people
that it has some value. Like govt told its people that it will be liable for
the value paper currency which is basically a Govt promise and people trusted
this Fiat money. It is a legal tender as it is given by central authority. It
is regulated by the Central Authority and they can print as much say want. In
the present scenario digital money came into the picture which makes the use of
physical money lesser. Bank keeps the ledger of all the account to solve the
double spending problem. There are attempts to make digital currency viable but
the double spending problem cannot be solved without central authority as
whenever entity gets the right to regulate money, it leads to corruption,
mismanagement and control on your own money will be lost. [1]In
October 2008, Satoshi Nakamoto created a digital crypto currency called
Bitcoin. It is a kind of distributed ledger which can be seen by anyone and it
has property that once a data is saved in it then it becomes difficult to change
it. In this customer can digitally exchange the value without the interruption
of 3rd party which was present earlier. It operates on the premise
of solving encryption algorithms to create unique hashes that are finite in
number. It is combined with a network of
computers and verifies the transactions; users are able to exchange hashes as
if exchanging physical currency. There are a fixed number of Bitcoin that is
generated and more no. will not be generated to prevent the overabundance and
to ensure its uniqueness.[2]
Cryptocurrencies have gone a long way
since their inception. While the traditional financial sector first dismissed
digital currencies as a tool for scammers and speculators, it has made great
strides toward establishing them as a genuine and (possibly) game-changing
field.[3]
While Bitcoin (BTC) and Ether (ETH) have experienced phenomenal price and user
growth, there are still concerns about the long-term consequences of broad
cryptocurrency use. Numerous skeptics and environmentalists have expressed
alarm about cryptocurrency mining’s significant energy consumption, which they
believe would result in increasing carbon emissions and
climate change.[4]
The mainstreaming of cryptocurrencies, as the phenomenon has been dubbed, is
without a doubt a watershed moment in the financial world. Additionally, it is
a significant event in the world of, well, the world. This is particularly true
in the case of Bitcoin, the original cryptocurrency. Similar to Dogecoin, it
has seen a sudden increase in value. A coin was valued at approximately $7,000
in April 2020; it is now worth more than $55,000.[5]
While Bitcoin mining is a fictitious activity, the ramifications can be just as
damaging as the real thing.
Concept Of Bitcoin
Mining
However, Bitcoin mining is critical
for maintaining and growing the blockchain record, as it is used to create new
bitcoins. To mine bitcoins, powerful computers are utilized to tackle
computational arithmetic problems that are too difficult to solve manually and
that tax even the most powerful computers.[6]
Miners are compensated for their
services as auditors. They determine the legitimacy of Bitcoin transactions.
They are accountable for this responsibility. Double spending occurs when a
bitcoin owner spends the same bitcoin twice. If you give someone a $20 bill to
purchase a bottle of vodka, you lose that $20 bill, and hence, cannot use it to
purchase lottery tickets next door. This is not an issue.[7]
While counterfeit money is a possibility, spending the same dollar twice is not
the same thing. When it comes to digital money, the holder can produce an exact
copy and transmit it to a merchant or another entity, while keeping the
original for themselves.
Cryptocurrency
And Environmental Concerns
The competitive nature of blockchains
has resulted in high energy expenses. Instead of a single central database, a
distributed network of miners’ records bitcoin transactions, and they are
compensated for their efforts via block rewards. New blocks can be created only
after these specialized machines solve complicated cryptographic puzzles. The
absence of a trusted middleman or a single point of failure, proponents of
bitcoin content, makes it a preferable money system to centralized ones.
Cryptocurrencies, according to a
study of emerging countries’ economic issues, have the potential to accelerate
development across a range of fields. Chudnovsky and Lopez (2006) argue that
new technologies and innovations are needed for poor countries to catch up.[8]
Cryptocurrency mining is a time- and
energy-intensive process in which powerful computers compete to solve tough
mathematical puzzles. Typically, fossil fuels, most notable coal, are used in
this process. According to Deutsche Bank, if Bitcoin were a country, it would
consume as much electricity as Ukraine in a single year. According to
Digiconomist, another cryptocurrency, Ethereum, consumes the same amount of
electricity as the entire country of Switzerland in a single year.[9]
While the algorithms that power
digital assets such as Bitcoin consume a significant amount of energy to
operate, this has a significant environmental impact. Consider the vast number
of cryptocurrencies and the expanding demand for Bitcoin mining to understand
the issue. At the moment, the energy required to run a blockchain-based
currency is comparable to that required to power many small countries, but
their use is growing. And when the industry’s need for electricity increases,
the supply will increase proportionately.[10]
Before you can calculate how much
electrical energy is necessary to run the bitcoin network, you must first
understand how bitcoin is created. To solve the puzzles, you must first
determine how many sums are done each second. Following that, determine the
amount of electricity required to execute each of the computations. These sums
are referred to as “hashes.”
Megahashes (sometimes referred to as
gigahashes) and megabits are the two most frequently used terms to describe how
many there are. In early 2020, the bitcoin network’s servers were producing
approximately 120 exahashes each second.[11]
By 2020, if these projections are correct, the bitcoin network will consume 120
GW of electricity each second. The energy equivalent is 63 terawatt-hours (TWh)
every year.[12]
Environmentalists fear that when the
price of bitcoin increases, mining will become inefficient. Increasing the
price of bitcoin entails solving more complicated mathematical problems while
maintaining the same transaction throughput. This means that as the network’s
capacity to process the same number of transactions grows, the network’s
capacity to process those transactions will expand as well.
Along with the consumption of
electricity, bitcoin mining generates a significant amount of obsolete
technology. Mining hardware with application-specific integrated circuits
(ASICs) is critical in this aspect.
Unlike other types of computer
hardware, these circuits cannot be reused and quickly become obsolete. Each
year, the bitcoin network generates between 8,000 and 12,000 tonnes of electronic
garbage, according to Digiconomist.[13]
If digital currencies are recognized as legal tender, firms may face taxes or
penalties based on their energy consumption. Legislators and regulators, on the
other hand, disagree on whether digital currencies are legitimate currencies.
To further complicate matters, not all cryptocurrencies are created equal, and
they do not all consume the same amount of energy. Certain digital currencies,
such as SolarCoin, may also profit.
The Role And Law Of WTO
In essence, there are no tariff
restrictions in GATT 1994 that bind crypto currency as a commodity. This is due
to the fact that the WTO has yet to take action to classify cryptocurrency as a
form of goods trading. Although the primary motivation for countries to treat
crypto currency as a commodity is to generate revenue from crypto transaction
taxes. Crypto money as a payment method falls within the category of trade in
services. The General Agreement on Trade in Services (GATS) consists of three
parts: the main agreement, which
contains obligations and general
provisions, attachments (Annexes) relating to rules for specific sectors, and
special commitments (Special Commitments) made by each country to provide
access to their markets, including indications that countries have not yet
applied the MFN principle.[14]
The definitions of the various terms is also local and globally standardised
which the WTO has to considered to make the development of crypto currency in
more lucid manner.
When it comes to international trade,
the World Trade Organization oversees the vast majority of it (WTO).
Regardless, there are a number of countries that have yet to join the WTO.[15] To reduce tariff
obstacles in inter-state commerce, numerous countries formed GATT in 1947, which
was later amended as GATT 1994. The World Trade Organization (WTO) was
established in 1995, after the Second World War. Previously, the GATT only set
tariff barriers on goods trade; however, the WTO covers a wide range of issues,
including anti-discrimination, anti-dumping, and intellectual property rights,
not just on goods trade but also on services trade.[16]
The heterodoxical approach of the crypto in whether in classification as legal
tender or ‘security’ is important aspect because the unification of the same
has not been made clear and everyday new self-governed policies are formulated
by individuals and entities. These issues are to mainframed into categories so
the authorities are clear what tariffs and what regulations are to be imposed.
The WTO has to define these aspects to core because the market is very much
unregulated and too much volatile. The
WTO agreement regulates three (three) categories of trade: goods trade,
services trade, and investment trade. The article 1.2 of the GATT agreement draws
out four main methods or ‘Mode of Supply’. The fourth method has the
significant attribute in the current regime for WTO to meet the current demands
of its object. The fourth mode requires the natural person to be presented who
embark the service of cryptocurrency over the various forums. The crypto
exchange company can be ruled in the similar position. However, many experts
along with the exchanges may have the branch offices or server within the same
state. This might create a conflict but on the practical aspects and the
practice might seem different but doesn’t affect the nomenclature. The
ramifications are such that procedure will complicate rather than simplify the
environmentally affected process of mining. The article XX of the GATS gives
the sovereign government power to exercise certain exceptions or exemption to
the GATT rules. The paragraph ‘g’ of the article XX provides for conservation
of exhaustible natural resources. Now when we see the current trend, the crypto
mining is made through the
traditional means of energy production i.e., using coal and petroleum-based
energy. The heavy intensive use of crypto mining is very much intensive and
this will in create extra burden on the state to regulate the limited
resources. This is when the WTO has to make a way through amending GATT and
GATS while mentioning of importance using the alternative usage of the
electricity such as solar energy, tidal energy and so forth. The environmental
concerns are the talk of 21st century and the WTO don’t want to attend to an
added burden. Also, few infamous crypto as mentioned above such as SolarCoin
have algorithms of production and distribution in way which use significant
less energy in the process. The WTO should consider the aspect and understand
the technology in suffice way that it helps the state who are in activity of
dealings of crypto as well as legal tender. The municipal boundaries of the
transactions are also important as well as the international transactions of
the crypto as stated by the authority in USA – Shrimp case. The modern bass of
ruling and functioning of WTO is achieving the goal of Sustainable Development.
The stressing of usage of renewable resources in such energy intensive
commodities is also an important aspect discussed in Doha round.
Crypto money would become an
investment item if any regulation on it as a commodity were to be implemented.
These countries should issue a warning about the security of crypto currency
transactions in this circumstance. In any event, several companies in Indonesia
currently provide crypto currency conversion services.[17]
These businesses will be in charge of crypto currency transactions. The
government has imposed rigorous rules on crypto currency exchange companies to
ensure transaction security. Some of the requirements concern the company's
terms of establishment, as well as the quantity of the firm's initial capital,
with the goal of ensuring that if a transaction error occurs, the company is
able to compensate its customers. The concept of Free Trade Agreements is the
most potential victim of situations where the international law and the
municipal laws don’t overlap but are in direct conflict as the states use the
defence of sovereignty or national security. In the official complaint by State
of Venezuela against USA for banning their local digital currency and this
action by USA which is termed as ‘less unfavourable’ due to the trade
restrictions on the single transaction arising from Venezuela but no
restrictions from Venezuela state. This on face value is in direct violation
and conflict to article II:1 of the GATS. This aspect is of very much paramount
importance when such economic super powers like to dominate when the
international circuit is operating in grey area. “Venezuelan goods face, as a result
of these measures, a greater
regulatory burden in terms of
conditions governing importation, as well as restrictions on who can perform
this import function, and unfair market opportunities once importation has
taken place. All of this denies Venezuelan goods the equality of opportunities
guaranteed by Article I:1 of the GATT.”[18]
These states have abundance of renewable and non-renewable energy sources, so
the scarcity issue is not much an issue and this dominant position will
directly or implicitly have a dominant position over other countries, which is
reasonably observed in Venezuela’s complaint to WTO.
Conclusion
Bitcoin’s value is determined by the
amount of energy it consumes and the environmental impact it has on the
environment. The ability to value a moving target is tough. Due to the
continued rise in popularity of Bitcoin, additional processing power is being
hired in order to serve a larger number of users. Whether Bitcoin mining is
environmentally sustainable in the long run is disputed, especially in light of
recent developments. There is no doubting that bitcoin and other proof-of-work
blockchains consume a large amount of energy, regardless of your view on
cryptocurrencies. While coal and other fossil fuels provide for the vast
majority of this energy, proponents of bitcoin argue that renewable energy
sources are just as important as conventional sources. Failure to take into
account the environmental repercussions of this technology and to regulate
digital currency corporations may not only harm the environment but may also
deter future digital currencies from reducing their energy consumption and
carbon emission levels in the future. As digital currencies gain in popularity,
it is important to consider their influence on the environment. As public
concern about the environmental impact of blockchain-based currencies has
grown, developers are exploring innovative solutions that deliver all of the
benefits of digital currency without the high carbon footprint that has been
associated with it. Continue to keep your eyes peeled for an emerging
generation of environmentally friendly cryptocurrencies that make use of
renewable energy sources to reduce the environmental impact of transactional
activity