There is a lot of attention around bitcoin at the moment. The course has been a roller coaster ride in recent months, encouraged by Elon Musk’s investments in the cryptocurrency. Should we care?
Bitcoin is one kryptovaluta, ie a digital currency that does not originate from a central bank or another central issuer.
The most important innovation in bitcoin and other cryptocurrencies is the way they secure transactions. When the currency is fully digital and decentralized, how can we avoid the same bitcoin being used for several payments?
This is solved by writing all the transactions in an open register – the so-called blockade. The computers connected to the bitcoin network keep the blockchain up to date by regularly verifying new transactions.
Bitcoin works like this that the process goes through extremely demanding calculations, and the first machine that completes the verification is then rewarded with new bitcoin. This activity is often referred to as bitcoin recovery.
Well and good, you might think. Yes, blockchain technologies have a lot of potential, both for digital currencies and other purposes. But bitcoin also has big shadowy sides. One of these is bitcoin’s huge ecological footprint.
The extraction of bitcoin requires very heavy calculations that are repeated by many players competing with each other to be the first to solve the math.
Energy consumption is enormous: over 550 kg of carbon emissions per transaction (!), And over 140 Terawatt hours per year worldwide, ie higher than the total consumption of energy in a country like the Netherlands.
Bitcoin supporters dismiss often the problem of answering that a part (about. 40 percent) of supply comes from renewable energy sources. However, it does not change the fact that bitcoin extraction reallocates enormous amounts of energy that could be used for other, more socially beneficial purposes – especially given the electrification that is taking place in many large sectors, such as transportation.
Bitcoin also has an ideological backdrop. The motivation behind bitcoin is to build a currency that is not dependent on trust – unlike ordinary currencies, which cannot function without trust in central banks and public authorities. Many people therefore see bitcoin as an opportunity to detach currency from the state.
This undoubtedly has its advantages, among other things to prevent authoritarian regimes from manipulating the currency to their own advantage.
But cryptocurrencies such as bitcoin also deprive democratic institutions of the opportunity to pursue social and economic policies. For example, collect taxes, take redistributive measures, or respond to financial crises by adjusting the amount of money in circulation.
It does not help that it is often difficult to find the identity behind participants in a transaction, which facilitates tax evasion and money laundering.
One would think that a currency that is driven by speculation, is climate-hostile and contributes to tax evasion and money laundering will not fall into good soil with the Norwegian authorities.
The truth is, unfortunately, that Norway is active subsidizes cryptocurrency winners by offering them reduced electricity fees, as a result of the government’s investment in data centers.
In 2018, the Storting decided to reintroduce full electricity tax to data centers that engaged in cryptocurrency extraction, but the decision was unfortunately not fully complied with by the government. Data center owners claim that it is difficult to distinguish between cryptocurrency extraction and other data activity, and that it will thus constitute illegal discrimination in accordance with the EEA state aid regulations.
In retrospect, this appears to be a dubious argument: the IT infrastructure required for bitcoin extraction is very specialized, with its own data processors that can only be used for this purpose.
In other words it is a completely different type of service / product than that offered by “regular” data centers.
The introduction of more appropriate fees for cryptocurrency recovery unfortunately meets with opposition in Norway, not least from ICT-Norway, which has stated on several occasions that The government should stay away from regulating what data centers spend their power on.
As an ICT researcher, I am very disappointed that the organization with responsibility for representing my own industry takes the environmental consequences of our industry so lightly.
A common objection from data center owners and ICT-Norway, is that a reduction in the recovery of cryptocurrencies in Norway will necessarily be replaced by increased extraction activity elsewhere in the world.
The argument still lacks documentation – and we can question whether this is true, especially when we know that the Chinese government has announced a sharp tightening of cryptocurrency recovery in the country (where 75% of world recovery takes place).
Digital currencies and blockchain technologies undoubtedly have a lot to offer, and could lead to important innovation in the future.
But this technological development cannot take place detached from the democratic institutions that govern our society.
It is entirely possible to regulate Bitcoin and reduce its gigantic energy consumption – if there is the political will to do so.
LEARN MORE ABOUT BITCOIN:
–
