Cryptocurrencies have become speculative investments even though that was not the primary reason they were created. While cryptocurrencies can be inherently wasteful and resource-intensive, they are also largely volatile.
The values for both of the ruling cryptocurrencies have dropped over the last six months by 55% leading to calls for regulation to stop the downward plunge.
Many people are looking to blame a falling stablecoin known as TerraUSD as the reason for the sliding prices because it is believed that it is tied to the dollar. But is that the real cause of the falling price? Let us find out.
Historically, bank bonds and treasury bills have been close to zero for years, making them dull investments, whereas cryptocurrency and digital NFTs, linked to artworks, now look interesting. Despite this, England’s Bank and US Federal Reserve have recently increased their interests by the most since 2000.
Markets have been sobering up as a result of Russia’s invasion of Ukraine and continuing COVID controls. Although Bitcoin was meant to be indifferent to banks and governments, investors are not. These investors are dumping their crypto assets while reducing their risk sources. This is the most likely cause of the sudden price drop but how has this impacted climate change?
Furthermore, crypto trading is on the rise, thanks to immediate connect and other platforms, which have helped users achieve freedom through trading in the crypto market.
Impact of Crypto’s loss on Climate Change
Bitcoin’s annual energy consumption is about 118.47 Terawatt-hours (TWh) more than all the refrigerators in the US combined. A mine can be considered as energy wasting in a controlled manner.
A computer program guesses numerous digits repeatedly using random inputs. As a result, a network’s hash rate measures the computing power used to achieve this. If the hash rate reduces for reasons, such as a power outage or a price drop, the guessing difficulty is adjusted automatically to find a new winner every 10 mins.
In turn, each winner verifies a transaction taking place and receives 6.25 newly created bitcoins. The mining outfit’s ability to make money from this game depends on the cost it has spent to set up and run its computers.
According to recent research, bitcoin’s carbon intensity increased by roughly 17% when China stopped bitcoin mining in August 2021, with 25% of bitcoin miners using renewable energy, and more than 60% using natural gas and coal.
With that said, this proves that the greater the value of cryptocurrency, the more miners will spend on electricity. With the falling price of bitcoin, there’s no more incentive to spend money on energy for bitcoin mining. That is a win for the climate. However, the network hash rate remains at itsall-time high which is 200 quintillion h/s. This means that people are still profiting from the current prices of this currency.
Death Spirals and Tipping Points
In the past, the value of bitcoin has temporarily fallen below the approximate cost of production without the hash rate suffering any long damage. But if the market stagnates for too long, cryptocurrencies will begin to see their miners capitulate.
These miners that incurred high costs will most likely sell when the cost of winning outweighs the reward which creates panic in the market to sell. It’s normal for smaller outfits to suffer short-term capitulation with high cost but when major mining firms close one currency down for another this can cause a domino effect and lead to a drop in carbon emission and the value of the cryptocurrency. This is what is referred to as the death spiral
For now, we would continue to see the hash rate at its current all-time high because of the ongoing mining. But if the current prices were to drop for a period, the hash rate would reduce and that will be a positive for the climate.