Should We Add Bitcoin to the Payment Window... The Reason That Makes Us Hesitate Is the 'Environmental Issue' [Next.Jjin]

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] "We are always discussing. If the exchange mechanism becomes cheaper and more environmentally friendly, we will accept cryptocurrencies more."

Dara Khosrowshahi, CEO of mobility sharing service company Uber, recently answered this way when asked in an interview with Bloomberg TV whether they would accept Bitcoin as a payment method. Along with the high cost of cashing out Bitcoin, the condition he mentioned was precisely the environmental issue of Bitcoin.

This issue was already highlighted last year by Elon Musk, CEO of Tesla. Due to Bitcoin mining causing fossil fuel usage, Tesla excluded Bitcoin from its electric vehicle payment methods in May last year. Two months later, Musk stated, "If it is confirmed that the proportion of renewable energy used in Bitcoin mining exceeds 50% and continues to increase, there is a high possibility of resuming Bitcoin payments." However, it has not resumed yet.

[Image source=Reuters Yonhap News]

Looking at the cases of Uber and Tesla, it can be interpreted that the environmental factors of Bitcoin are ultimately blocking its appeal as a payment method. While companies like Microsoft (MS) and Starbucks already accept Bitcoin payments, what issues are they raising?

What is the problem with Bitcoin mining?

Bitcoin is criticized for consuming enormous amounts of energy during the mining process and damaging the environment. In fact, Bitcoin itself does not emit greenhouse gases. Instead, the principle of Bitcoin mining is the Proof of Work (PoW) method, which rewards Bitcoin when adding a new block to the blockchain. This mining process consumes an enormous amount of electricity. Especially last year, as Bitcoin prices soared, large-scale data centers were built with high-performance computers to mine Bitcoin massively, causing electricity consumption to increase rapidly.

The scale surpasses the electricity consumption of some countries. According to the University of Cambridge in the UK, the estimated annual electricity consumption for Bitcoin mining exceeds 140 terawatt-hours (TWh). This level surpasses the annual electricity consumption of countries such as the United Arab Emirates (UAE), the Netherlands, the Philippines, Belgium, and Austria. Electricity consumption for Bitcoin mining was only 6.6 TWh in early 2017 and 67 TWh as of October 2020, but surged sharply following the rise in Bitcoin prices.

Bitcoin Power Consumption Trends (Source: University of Cambridge Centre for Alternative Finance website)

The problem is that a significant portion of this electricity comes from fossil fuels. At one point, Bitcoin mining concentrated in China, where energy could be obtained cheaply. In particular, coal-based electricity in China was mainly produced in winter and used for mining. As Bitcoin’s environmental issues surfaced, the Chinese government restricted Bitcoin mining last year, and miners relocated to countries like the United States. Many gathered in places such as New York and Texas.

The cryptocurrency industry is attempting to switch the electricity used in mining to renewable energy, but given the limited global energy production, if Bitcoin consumes renewable energy, the amount supplied to homes and businesses inevitably decreases.

Companies are making improvements... Regulators are also stepping in

Amid ongoing criticism, the cryptocurrency industry has been continuously preparing measures to improve environmental issues since last year. Ethereum, Bitcoin’s biggest competitor, announced last year that it would switch from the energy-intensive PoW mining method to the Proof of Stake (PoS) method, reducing electricity consumption by 99.95%. Besides this, the industry is making efforts such as replacing mining equipment with less power-consuming devices and increasing the share of renewable energy.

However, despite these efforts, major countries including the United States view Bitcoin’s environmental issues unfavorably. According to the US political media Politico, Senator Elizabeth Warren of the US Democratic Party requested detailed information on electricity consumption from six major Bitcoin mining companies last month. Senator Warren emphasized, "The massive electricity consumption and carbon emissions related to Bitcoin mining could undermine our efforts to address the climate crisis," adding, "It is time for Congress and federal regulatory agencies to step in and address the risks cryptocurrencies pose to the economy and environment." She believes management intervention is necessary.

U.S. Capitol Building
[Image source=Reuters Yonhap News]

Europe, which is the most proactive in responding to climate change worldwide, also emphasizes the need for regulation. Since Sweden proposed in November last year that non-environmentally friendly Bitcoin mining should be banned to conserve renewable energy, discussions have continued. Eric Thedeen, Deputy Head of the European Securities and Markets Authority (ESMA), who moved from the Swedish Financial Supervisory Authority to ESMA, argued in an interview last month that the energy-intensive PoW method should be replaced with PoS.

As the possibility of regulation increases, some suggest that transparency regarding environmental matters should be demanded from each company concerning cryptocurrency’s environmental issues, and carbon taxes could be imposed on fossil fuel usage. With the cryptocurrency market currently worth $2 trillion (approximately 2,400 trillion KRW) rapidly expanding, attention is focused on whether these issues will gradually be resolved and cryptocurrencies will be included as payment methods within apps.

Editor's Note [Next.Jjin] means 'looking ahead to the real next of business' and is a corner delivering overseas news related to future industries and startups such as the metaverse, artificial intelligence (AI), and robotics. We will uncover and explain both major visible issues and small but important hidden issues in an easy-to-understand manner.