'The time is now' for cryptocurrencies, PayPal CEO says
Is Bitcoin akin to 'digital gold'?
04 December, 2020
Credit: André François McKenzie on Unsplash
- In October, PayPal announced that it would begin allowing users to buy, sell, and hold cryptocurrencies.
- Other major fintech companies—Square, Fidelity, SoFi—have also recently begun investing heavily in cryptocurrencies.
- While prices are volatile, many investors believe cryptocurrencies are a relatively safe bet because blockchain technology will prove itself over the long term.
<p>PayPal CEO Dan Schulman sees a silver lining amid the chaos of the COVID-19 pandemic: It's accelerating cryptocurrency adoption at a rapid clip, potentially by years.<br></p><p>Speaking in front of a digital audience at the <a href="https://websummit.com/schedule/timeslot/the-cashless-era-in-conversation-with-dan-schulman" target="_blank" rel="noopener noreferrer">2020 Web Summit</a>, Schulman added that he's optimistic about the future of cryptocurrencies:</p><p style="margin-left: 20px;">"I think that if you can create a financial system, a new and modern technology that is faster, that is less expensive, more efficient, that's good for bringing more people into the system, for inclusion, to help drive down costs, to help drive financial health for so many people. [...] So, over the long run, I'm very bullish on digital currencies of all kinds."</p><p>His bullishness might be unsurprising, considering PayPal is among the latest fintech companies to move into the cryptocurrency space. In October, PayPal <a href="https://www.paypal.com/us/smarthelp/article/cryptocurrency-on-paypal-faq-faq4398?app=searchAutoComplete" target="_blank" rel="noopener noreferrer">announced</a> that users would soon be able to buy, sell, and hold cryptocurrencies "directly through PayPal using their Cash or Cash Plus account." That went into effect in November, and the company plans to extend it to Venmo users in 2021.</p>
<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDg2NjgwMi9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTY3NDUwNDY5N30.gnh4vV_oH6DEB9-4vLegBin7GKM4L5anMB_1AWwvYHk/img.png?width=980" id="779bb" class="rm-shortcode" data-rm-shortcode-id="2a95f9f17ee78d09d15a4b6518a887aa" data-rm-shortcode-name="rebelmouse-image" data-width="755" data-height="431" />
Presentation slide from Sanja Kon's presentation on the evolution of money at 2020 Web Summit
Credit: Sanja Kon
<p>The move came shortly after the payments company Square invested $50 million into Bitcoin, and after Fidelity announced that it was opening a Bitcoin fund into which qualified purchasers could invest <a href="https://www.bloomberg.com/news/articles/2020-08-26/fidelity-launches-inaugural-bitcoin-fund-for-wealthy-investors" target="_blank">(minimum investment: $100,000)</a>. Together, this institutional backing might have something to do with Bitcoin's recent surge back to near its 2017 price peak of $19,783. (Bitcoin is listed at 19,384.30 as of Dec. 3.)<br></p><img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDg2NjgwNi9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTYyNDU1MjU4Mn0.iY4_nt4qUx9M83j4tZfMG3mnwj2yRuzRz370Ja663Cw/img.png?width=980" id="ca650" class="rm-shortcode" data-rm-shortcode-id="85510e5bd2cf0039e69aa0ac8dbb0234" data-rm-shortcode-name="rebelmouse-image" data-width="783" data-height="440" />
Presentation slide from Sanja Kon's presentation on the evolution of money at 2020 Web Summit
Credit: Sanja Kon
<p>But more importantly, it suggests cryptocurrencies might soon have the opportunity to prove themselves in real-world use cases. After all, skeptics have long doubted the ability of cryptocurrencies to go mainstream as a form of everyday payment. But people seem increasingly comfortable with digital payment systems.</p><p style="margin-left: 20px;">"The entire world is going to come into digital first," Schulman said at Web Summit, adding that PayPal's services already go hand-in-hand with cryptocurrencies. "As we thought about it, digital wallets are a natural complement to digital currencies. We've got over 360 million digital wallets and we need to embrace cryptocurrencies."</p><p>Sanja Kon, CEO of global partnerships at the cryptocurrency payments processor company UTRUST, also spoke at Web Summit about the increasing adoption of digital payments:</p><p style="margin-left: 20px;">"Physical cash is becoming more and more obsolete. And the next step in the evolution is digital currency."</p><p>Kon noted some of the inherent advantages of cryptocurrencies, namely ownership. </p><p style="margin-left: 20px;">"For many people, this is really the main benefit of cryptocurrency: Users owning cryptocurrencies are able to control how they spend their money without dealing with any intermediary authority like a bank or a government, for example," Kon said, adding that there are no bank fees associated with cryptocurrencies, and that international transaction fees are significantly lower than wire transfers of fiat currency.</p><p>Kon said cryptocurrencies have unique growth opportunities in areas where people aren't integrated into modern banking systems:</p><p style="margin-left: 20px;">"With cryptocurrencies and blockchain, with the use of just a smartphone and access to internet, Bitcoin and cryptocurrencies can be available to populations of people and users without access to the traditional banking system."</p>Bitcoin as 'digital gold'
<p>Still, it could take years for people to start using cryptocurrencies for everyday purchases on a large scale. Despite this, many cryptocurrency advocates see digital currencies, particularly Bitcoin, as a way to store value—digital gold, essentially.</p><p style="margin-left: 20px;">"I don't think Bitcoin is going to be used as a transactional currency anytime in the next five years," billionaire investor Mike Novogratz recently told <a href="https://www.bloomberg.com/news/articles/2020-10-23/novogratz-says-bitcoin-is-digital-gold-not-a-currency-for-now?srnd=markets-vp" target="_blank">Bloomberg</a>. "Bitcoin is being used as a store of value. [...] "Bitcoin as a gold, as digital gold, is just going to keep going higher. More and more people are going to want it as some portion of their portfolio."</p><p>There are obvious parallels between gold and Bitcoin: Both are mined, do not degrade over time, are finite in supply, and aren't directly tied to the value of fiat currency, making them <a href="https://www.reuters.com/article/us-gold-inflation/gold-as-an-inflation-hedge-well-sort-of-idUSKCN1GD516" target="_blank" rel="noopener noreferrer">relatively invulnerable to inflation</a>. The obvious objection is that the price of Bitcoin, and cryptocurrencies in general, is far more volatile than gold.</p><p>But for investors who believe the inherent value of cryptocurrency technology will prove itself over the long term, these price fluctuations are just bumps on the long road to the future of currency. </p><p style="margin-left: 20px;">"It's no longer a debate if crypto is a thing, if Bitcoin is an asset, if the blockchain is going to be part of the financial infrastructure," Novogratz said. "It's not if, it's when, and so every single company has to have a plan now."</p>
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3 things that happen to the cryptocurrency markets during times of economic uncertainty
Unfortunately, it's getting easier to predict what might happen to cryptocurrencies when the economy takes a nosedive.
02 April, 2020
Pexels
- Born in the wake of the 2008 financial crisis, Bitcoin hasn't yet faced a downturn like we're starting to experience.
- Based on the developments of recent weeks, some crypto market trends are starting to emerge.
- Bitcoin's relationship to gold is strong, futures and options are losing their lure, and stablecoins are on the rise.
<p>Although nobody knows yet what the outcome of the global coronavirus crisis will look like, there is one conclusion on which everyone seems to agree: The economic fallout is going to be significant. Last week, the U.S. government <a href="https://www.nytimes.com/2020/03/26/us/coronavirus-senate-stimulus-package.html" target="_blank">signed off</a> on a $2 trillion relief bill, and governments around the world are printing money in an attempt to stave off a pending financial crisis. </p>
<p>No cryptocurrency has ever gone through a full economic cycle. Bitcoin was born from the depths of the 2008 global financial crisis. Famously, Bitcoin's genesis block <a href="https://www.investopedia.com/terms/g/genesis-block.asp" target="_blank">contains the headline</a> from <em>The Times</em> on the date that creator Satoshi Nakamoto mined the first ever Bitcoin: "Chancellor on brink of second bailout for banks."</p><p>So, until now, despite rampant speculation, it's been difficult to predict <a href="https://bigthink.com/technology-innovation/review-of-cryptocurrency-history" target="_self">what might happen to cryptocurrencies</a> when the economy takes a nosedive. However, the last couple of months, as the coronavirus has unfolded, have given us an idea of a few significant trends.</p>
1. Bitcoin shows a higher correlation to gold
<p>The idea of Bitcoin as "digital gold" has been around for a while. It's true that <a href="https://bigthink.com/new-study-on-cryptomining-energy" target="_self">the two assets share some similarities</a>: a price driven by the forces of supply and demand and limitations on supply, for example. However, whether or not investors would treat Bitcoin as a "safe haven" investment during times of turmoil in the stock market hadn't been proven.</p><p>On March 12, as the global stock markets plummeted and <a href="https://www.cnbc.com/2020/03/12/stock-futures-hit-a-limit-down-trading-halt-for-a-second-time-this-week-heres-what-that-means.html" target="_blank">circuit breakers halted</a> trading on the NYSE, the price of cryptocurrencies also took a nosedive. Bitcoin <a href="https://coinmarketcap.com/currencies/bitcoin/" target="_blank">lost</a> more than 40% of its value – the biggest single-day percentage drop in price since 2013.</p><p>However, on that day, gold held its price. Critics were quick to point out that the "digital gold" theory had been debunked, but perhaps they were a little too quick. Over the days that followed, gold recorded its sharpest drop in a single week, losing <a href="https://www.jmbullion.com/charts/gold-price/" target="_blank">around 12%</a> of its price.</p><img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMjkxNDE0Mi9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTYzMjY0NTkwMX0.8PucsGbBEIiFZdWY23bZ2radHN7Z5I0vH16UnUznuJg/img.png?width=980" id="17a87" class="rm-shortcode" data-rm-shortcode-id="d2abeefb9bcb668f219bde3c16338743" data-rm-shortcode-name="rebelmouse-image" data-width="1999" data-height="714" /><p>Since then, the price of both assets has recovered somewhat, although Bitcoin to a lesser extent than gold, after recording a more significant decrease. Nevertheless, according to data aggregator <a href="https://www.skew.com/dashboard/macro" target="_blank">Skew</a>, Bitcoin and gold are showing record correlation levels of more than 50%, perhaps demonstrating that in times of economic uncertainty, the concept of Bitcoin as digital gold is more accurate than it initially seemed.</p>
2. Open interest in futures and options takes a hit
<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMjkxNDEzNS9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTY1OTg1MDk3MH0.9NFPnEbQ0H3yk5F-VG16I_OKRc1y-2wPNeyQmqbJHGI/img.png?width=980" id="6a104" class="rm-shortcode" data-rm-shortcode-id="7c7356f86e2f3d8c0d604913bf6a221a" data-rm-shortcode-name="rebelmouse-image" data-width="1200" data-height="670" /><p>March 12 was a pivotal moment on the cryptocurrency markets across derivatives, too. Before the coronavirus started to take hold, Bitcoin futures had been enjoying something of a moment. According to Skew, total open interest had more than doubled from around $2.2 billion in November 2019, to $5 billion in mid-February.</p><p>On March 12 and 13, as the price of Bitcoin dropped precipitously, crypto exchanges liquidated millions of dollars' worth of long positions.</p><p>Market leader BitMEX came under particular fire, as it had <a href="https://cointelegraph.com/news/bitmex-takes-a-hit-community-cries-foul-play-following-market-crash" target="_blank">experienced two 25-minute outages</a> meaning traders had no access to their accounts to top up margin or take any actions to hedge their positions. Traders on BitMEX saw over $1.5 billion of positions liquidated in the space of two days.</p><img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMjkxNDEzNi9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTYxMzAwNzE0Nn0.WYyqs2Q__kWRlK0cO0q9STCL2uWl_pPyLVVSmTIP_k8/img.png?width=980" id="147ba" class="rm-shortcode" data-rm-shortcode-id="3e5db79ba016a00c1f31718875cb8851" data-rm-shortcode-name="rebelmouse-image" data-width="1200" data-height="670" />
<p>This drop illustrates the extent of investor panic, withdrawing from speculating even with short positions. It will be intriguing to see how quickly the crypto derivatives markets recover from this blow over the coming months, given that 2019 was a period of massive growth in these markets.</p>
3. Demand for stablecoins skyrockets
<p>Stablecoins were another asset class that was burgeoning before panic surrounding COVID-19 took hold. Because they're pegged to fiat currencies such as the USD, stablecoins had become the go-to currencies for traders entering and exiting positions. In 2019, the most popular stablecoin, Tether (USDT), had <a href="https://coinmarketcap.com/currencies/tether/" target="_blank">doubled its market cap</a> from $2 billion to $4 billion, and <a href="https://www.bloomberg.com/news/articles/2019-10-01/tether-not-bitcoin-likely-the-world-s-most-used-cryptocurrency" target="_blank">overtaken Bitcoin</a> as the most traded cryptocurrency.</p><p>During the market turmoil in March, while the rest of the market tanked, Tether came out smelling of roses. The market cap of USDT gained a further $1.5 billion in the second half of March alone, as Tether Limited attempted to mint enough stablecoins to meet the demand of investors keen to convert their gains or losses to a more predictable asset.</p><img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMjkxNDEzNy9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTYzNjEzMjkzM30.w-MISnBqJtm2TVJoUX9Q2r6bnnxdmNgNbTolv3gPhS4/img.png?width=980" id="91beb" class="rm-shortcode" data-rm-shortcode-id="30b2420b7c0773b5eefc94fd17054189" data-rm-shortcode-name="rebelmouse-image" data-width="1200" data-height="670" /><p>Sam Bankman-Fried, CEO of FTX Exchange and rapidly becoming something of a sage on crypto-Twitter, <a href="https://twitter.com/SBF_Alameda/status/1244782130619486209?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1244782130619486209&ref_url=https://cryptoslate.com/whats-really-going-on-with-tethers-exploding-supply-crypto-exec-tells-all/" target="_blank">attributed</a> Tether's March explosion to a flow of OTC originating in Asia, along with investors converting their Bitcoins to Tether as a means of hedging and reducing risk.</p><h2>Uncertain times for token holders</h2><p>The cryptocurrency markets are always notoriously volatile, even when the rest of the economy is sailing in smooth waters.</p><ul></ul><ul></ul><p>However, the events in March have provided a flavor of what we can expect from the crypto markets once the traditional markets experience tumult. Whether these trends continue to play out as the coronavirus bites harder, remains to be seen.</p>
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- The image of cryptocurrency tends to focus on privilege and flaunted wealth.
- Financial institutions dismiss Bitcoin as a fad, while exploiting the benefits of the underlying technology for themselves.
- But the story in developing countries paints a different picture – one of vast potential.
<p>In 2018, <a href="https://www.nytimes.com/2018/01/13/style/bitcoin-millionaires.amp.html" target="_blank">The New York Times</a> published a comprehensive expose on the burgeoning crypto movement that detailed the luxurious lives of the newly crypto rich. The article, aptly titled, "Everyone is Getting Hilariously Rich and You're Not" is emblematic of the coverage that often typecasts crypto enthusiasts as amateur wealth connoisseurs.</p><p>It's a common storyline about crypto diehards that is imminently popular because of the ostentatious numbers and the perceived greed of the whole thing. For example, when Ripple surged in value by more than 1,240% in a month, the <a href="https://www.news.com.au/finance/money/investing/ripple-surges-past-ethereum-and-bitcoin-cash-to-become-secondlargest-cryptocurrency/news-story/05c913253182d32cd93cad558c74a9fd" target="_blank">headlines often reported on the company's CEO</a>, Chris Larsen, who briefly became richer than Mark Zuckerberg.</p><p>The notion that a few people,<a href="https://howmuch.net/articles/bitcoin-wealth-distribution" target="_blank"> 4.11% of Bitcoin owners to be exact</a>, are becoming incredibly wealthy from the crypto movement only perpetuate the idea that cryptocurrencies are about becoming fabulously wealthy. </p><p>Of course, this penchant for discussing privilege has created a limiting narrative that propels skepticism about the transformative potential found in cryptocurrencies. </p><p>More specifically, continuing narratives about the culture of privilege surrounding cryptocurrencies is a distraction from what should define the primary use case for the crypto movement. </p>
The skepticism of financial institutions
<p>While traditional financial institutions are happy to benefit from Bitcoin in the form of derivatives contracts bought and sold through their institutions, they are continually dismissive of the crypto movement.</p><p>Most famously, JP Morgan Chase CEO, <a href="https://www.bloomberg.com/news/articles/2017-09-12/jpmorgan-s-ceo-says-he-d-fire-traders-who-bet-on-fraud-bitcoin" target="_blank">Jamie Dimon, described Bitcoin</a> as a "fraud," adding that it's a good option for murderers and drug dealers. </p><p>Meanwhile, Bill Harris, the former CEO of PayPal, <a href="https://www.vox.com/2018/4/24/17275202/bitcoin-scam-cryptocurrency-mining-pump-dump-fraud-ico-value" target="_blank">described Bitcoin</a> as "a colossal pump-and-dump scheme...best suited for one use: criminal activity." Similarly, billionaire <a href="https://www.bloomberg.com/news/articles/2018-02-14/munger-calls-bitcoin-a-noxious-poison-government-should-tackle" target="_blank">Charles Munger</a>, vice chairman of Berkshire Hathaway, explained that he "detested it the moment it was raised."</p><p>Moreover, Bank of America has expressed continual incredulity about crypto's underlying technology, the blockchain, even as they <a href="https://www.cnbc.com/2019/03/25/bank-of-america-skeptical-on-blockchain-despite-having-most-patents.html" target="_blank">rack up the most patents</a> for the technology.<br></p><p>To be sure, financial institutions have every reason to prevent the proliferation of cryptocurrencies. Not only do they circumvent their once-unchallenged grip on the monetary system, but these institutions, and those who run them, have little use for an alternative to the existing financial infrastructure. </p><p>Simply put, the incredulity the financial elites feel is self-serving at best. Not only do they sit in powerful positions that prop up their privilege, but their access to vast financial resources encourages them to be dismissive of a new asset class that serves less well-positioned people.</p>Creating Financial Inclusion
<p>With all this noise, an important expression of the crypto movement is struggling to breakthrough. For some, cryptocurrencies are just a modern way for a few people to become incredibly wealthy, while others see it as a threat to their business model and bottom line.</p><p>However, for many others, cryptocurrencies are a savior, a crucial way of exchanging value in turbulent and unstable situations. In between the headlines and hot takes, cryptocurrencies are making a real difference in the lives of the unbanked, those living in developing countries, and those impacted by geopolitical turmoil.</p><p>While <a href="https://libra.org/en-US/white-paper/#introduction" target="_blank">Facebook's highly touted Libra </a>is yet unproven, the purpose is right on the mark. The currency is targeting the worlds' 1.7 billion adults who don't have access to the financial system. In the US alone, <a href="https://cointelegraph.com/news/how-blockchain-is-banking-the-unbanked" target="_blank">25% of the population is considered unbanked</a>, meaning that there is a significant need for a better option. </p><p>Therefore, tech titan <a href="https://www.ibm.com/blogs/blockchain/2019/04/unbanked-to-big-banks-how-crypto-facilitates-financial-inclusion/" target="_blank">IBM</a> notes, "we have reached a tipping point in the banking industry where our relationships with banks and how they extract value from us is going to be transformed."</p><p>For a lot of people, that transformation is already taking place. In Venezuela, where the national currency's annual inflation rate is 1.7 million percent, cryptocurrencies are allowing people to buy things like food, milk, and housing. As Venezuelan economist, Carlos Hernández, wrote in a <a href="https://www.nytimes.com/2019/02/23/opinion/sunday/venezuela-bitcoin-inflation-cryptocurrencies.html" target="_blank">Times op-ed</a>, "'Borderless money' is more than a buzzword when you live in a collapsing economy and a collapsing dictatorship."</p><p>Indeed, cryptocurrencies effectively combat inflation, corruption, and high remittance costs. With cryptocurrencies, people aren't dependent on financial elites or established organizations to provide relief or opportunity. They can create this for themselves.</p>Creating new opportunities for entrepreneurs
<p>Beyond the use case of blockchain as cryptocurrencies, the open, censorship-resistant nature of the technology has fostered a startup culture that's positively buzzing with innovation, the benefit of which isn't just limited to wealthy hubs like San Francisco and Singapore. </p><p>For example, <a href="https://matic.network/" target="_blank">Matic Network</a> is an Indian company that is rapidly becoming the base protocol of India with its fast, scalable second-layer solution for Ethereum. Whereas Ethereum has struggled to scale beyond around 15 transactions per second, Matic uses side-chain technology to scale up to 65,000 transactions per second. </p><p>The company has already established partnerships with well-known names in the blockchain space, including Binance and Coinbase Ventures. As a development platform, Matic provides ready-made infrastructure to help kickstart the Indian blockchain startup scene, encouraging tech entrepreneurs to bring their applications to life</p><p>Despite its status as a developing country, India has long been the IT outsourcing hub of choice for companies the world over and contains a wealth of programming talent. </p><p>. </p>Open source, shared benefits
<p>For the many people who won't become Bitcoin millionaires and who aren't members of the financial elite, cryptocurrencies and blockchain are becoming a vital resource that levels the playing field, inviting total participation in a trustless economy that has a place for everyone. Furthermore, the low barrier to entry for building blockchain-based applications offers the potential to open new channels for entrepreneurship in developing countries.</p>
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Bitcoin mining uses as much energy as mining for gold, study finds
What does it mean for the future of the cryptocurrency movement and its impact on the environment?
08 November, 2018
- New study reveals that mining crypto can be use more energy than mine for gold.
- In order to understand the findings, we must first understand what crypto mining is.
- The crypto community is looking for a way to solve these issue.
</li></ul>
<p>According to a study published in the journal <a href="https://www.nature.com/articles/s41893-018-0152-7.epdf?referrer_access_token=4WFhbLVH943fe3mcf8oZANRgN0jAjWel9jnR3ZoTv0NdJEcpPQZqiP9V_5sRM6OFeEt1maRlkYa2rAMRc-x1aVbfFmAZSeIy1BUabgBXZ5z6UQfH0t8xSV-r-npyxYVvgn4cGz5vnYe41OneS4y9iDEq9qg_P_yvZnh3zShMKtDW2Q4oj7ea5KOxnmJf-j_pUXVLuKqBdId1DeooWHyXBGTsaKAeh50jbelu7OUy1zXIkZZVtyhwK389Tt_6m7EusXgJedPs47tRpklbfG1lrE7zSz3Bqp6kqnD7z10SVdY%3D&tracking_referrer=blogs.discovermagazine.com" target="_blank"><em>Nature Sustainability</em></a> on November 5, from researchers Max J. Krause and Thabet Tolaymat, it appears that mining cryptocurrencies — such as <a href="https://bigthink.com/search/?q=bitcoin" target="_self">Bitcoin</a> — uses more energy than conventional mining for copper and platinum. It may even use as much much energy — possibly more — than is used for mining gold. For some in the tech and environmental sectors, this isn't new information. In fact, since Bitcoin's inception, environmentalists and tech enthusiasts alike have brought attention to the <a href="https://www.nytimes.com/2018/01/21/technology/bitcoin-mining-energy-consumption.html" target="_blank">energy-intensive process</a> of mining the popular cryptocurrency.</p><p>Because of the new study, we now know, though, that the amount of energy required to mine Bitcoin is nearly twice as much as what's required for mining copper and platinum. But why is it so energy expensive and what does this mean for the future and sustainability of the cryptocurrency movement? </p>
What’s causing the energy consumption?
<p>To better understand the study's findings, it's important to first have a basic understanding of what Bitcoin and other cryptocurrency "miners" are doing. Bitcoin is just one type of cryptocurrency, well-known as the original currency with the highest market capitalization, but it's not the only currency in circulation. Along with <a href="https://coinmarketcap.com/" target="_blank">many other coins and tokens</a>, Bitcoins are digital currency that can be owned by anyone, transferred from one party to another, which are <em>not </em>issued by a central authority like the US dollar or other fiat currency.</p><p>The underlying technology powering Bitcoin and many other cryptocurrencies (though not all) is <a href="https://bigthink.com/search/?q=blockchain+technology" target="_self"><em>blockchain technology</em></a><em>.</em> The Bitcoin network relies on a decentralized network with a distributed ledger to keep track of all transactions. As people send and receive Bitcoins to each other, the network records the transactions. All of the recording is done by a large group of volunteers who maintain the network; these "volunteers" are the miners. </p><p>Those <a href="https://www.chainbits.com/blockchain-101/what-is-cryptocurrency-mining/" target="_blank">"mining"</a> for Bitcoin aren't physically mining, but rather solving difficult cryptographic puzzles proving they've recorded the correct transactions and are in agreement with the network before adding a block (a chunk of information, i.e. set of transactions) to the history of transactions in the past (i.e. the "chain") — that's how we end up with a "blockchain." This is also how new Bitcoins are generated. </p><p>To accomplish this task, the Bitcoin network operates using a consensus mechanism called "Proof-of-Work" (PoW). This requires miners to do an extensive amount of processing and involves a lot of hardware running 24/7/365 in large amounts. If you've ever seen a cryptocurrency mining operation before, you'll know exactly what we mean.</p>Understanding the scale
<p>The second factor to consider besides the actual mechanics of what's happening when mining is the size of operations. While there are miners operating small rigs in their <a href="https://www.marketwatch.com/story/college-students-are-secretly-mining-bitcoin-in-their-dorms-on-room-check-days-i-have-to-put-a-blanket-over-it-2018-03-29" target="_blank">college dorm rooms</a>, there are an even larger number of exceptionally large mining operations taking place across the world. Given how energy intensive mining for cryptocurrencies is, energy consumption is only compounded when looking at the global scale of mining.</p><p>In fact, some estimates have put the global energy consumption of Bitcoin mining higher than <a href="https://www.theguardian.com/technology/2017/nov/27/bitcoin-mining-consumes-electricity-ireland" target="_blank">energy consumed by all of Ireland</a>. While others believe such estimates <a href="https://www.nbcnews.com/tech/tech-news/study-claims-bitcoin-uses-much-energy-ireland-not-so-fast-n875211" target="_blank">to be inflated</a>, the fact remains that mining cryptocurrencies requires a substantial amount of energy, especially after factoring in mining operations from other cryptocurrencies besides Bitcoin, like the second highest coin by market capitalization, Ether. </p>What is the community doing to solve this?
<p>Of course, those on the sidelines aren't the only ones noticing the vast amount of energy consumed by mining cryptocurrencies. Improving efficiency in the cryptocurrency world is already a concern for many of the top minds in the industry.</p><p>The founder of the Ethereum project, Vitalik Buterin, has already proposed a new direction for the well-known blockchain-based platform that's given rise to so many new tokens in recent years. Though currently operating on a Proof-of-Work (PoW) consensus mechanism like Bitcoin, the Ethereum network is slated to eventually make the switch to a new Proof-of-Stake (PoS) hybrid method of mining that will reduce energy consumption in the crypto mining industry while still maintaining the integrity of the network. The new initiative has been nicknamed "Casper" and is to be implemented with <a href="https://medium.com/edchain/what-is-sharding-in-blockchain-8afd9ed4cff0" target="_blank">sharding</a> for a new version of Ethereum known as "Serenity," <a href="https://www.financemagnates.com/cryptocurrency/news/buterin-proof-of-stake-ethereum-is-really-no-longer-so-far-away/" target="_blank">according to Buterin</a>. </p><p>At the same time, there are others in the community looking at different solutions. Some sources aren't looking at the energy consumption itself, but rather how miners are getting the energy they require. <a href="https://www.technologyreview.com/s/611908/this-company-thinks-it-can-help-solve-bitcoins-energy-problem/" target="_blank">New initiatives are popping up</a> in the market to offer green energy solutions directly to the mining community with a heavy thirst for energy.</p><p>While others, like Timothy Lee with ArsTechnica have pointed out that if the price of Bitcoin stays (relatively) consistent, then we're likely to see energy demands from the network <a href="https://arstechnica.com/tech-policy/2018/05/new-study-quantifies-bitcoins-ludicrous-energy-consumption/" target="_blank">decrease over time, not increase</a>, as block rewards (the amount of Bitcoins miners receive) decrease over time. The next "halving" is expected to <a href="https://www.bitcoinblockhalf.com/" target="_blank">occur in mid-2020</a> with the reward dropping by 50% roughly every four years following that until the last of the 21,000,000 Bitcoins are completely mined. </p><p> Others in the industry dislike the comparison between gold and cryptomining altogether. As CEO and co-founder of <a href="https://cryptopotato.com/" target="_blank">cryptopotato.com</a> says:</p><blockquote>I think that this kind of comparison is too shallow; it doesn't take into consideration two factors which are much more important than the amount of energy consumed. Bitcoin mining farms will always try to reduce their energy price and their consumption as much as they can while trying to find renewable energy resources so as to make processes cheaper and more efficient. In the case of gold mining, however, electricity is just one of many resources in a process which has a lot of constraints which result in nonrenewable resources being used such as coal and oil which have far reaching environmental repercussions.</blockquote><blockquote style="margin-left: 20px;"><em></em></blockquote>Moving forward
<p>Even with the significant energy consumption by cryptocurrency miners, the researcher behind the study, Max Krause, still believes cryptocurrencies will continue to grow in popularity and relevance in society, <a href="http://blogs.discovermagazine.com/d-brief/2018/11/05/mining-cryptocurrency-uses-energy-actual-mining-metals/#.W-NOBZNKiM_" target="_blank">saying that</a>:</p><blockquote><em>I believe in the next five years you'll have the option to buy something on Amazon or a coffee at your local shop with cryptocurrency. But what I want is for people to understand all the costs of the new technology. We can embrace new technology but we should have a good understanding of what exactly we are embracing.</em></blockquote><p>The question now remains how energy consumption concerns will impact the growth and direction of the cryptocurrency world in the coming future. What do you think?</p>
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Bitcoin mining: What is it? Why does it consume so much energy?
Once a lucrative exercise anyone could do, bitcoin mining has grown out of control, and governments are weighing what to do.
14 February, 2018
Credit: Getty Images.
Bitcoin is a cryptocurrency located completely online and not tied to any central bank. Its origins are shrouded in mystery and very few people predicted the popularity it currently enjoys.
<p></p><p>Rather than being approved by a nation's central bank, bitcoin is <a href="http://money.cnn.com/infographic/technology/what-is-bitcoin/" target="_blank" title="CNN Money ">verified by individuals in an open ledger</a> available for all to see. It was created in 2009 by '<a href="https://www.cnbc.com/2014/01/23/cnbc-explains-how-to-mine-bitcoins-on-your-own.html" target="_blank" title="CNBC">Satoshi Nakamoto</a>', which is likely a moniker designed to protects the identity of its creator. Satoshi Nakamoto is a Japanese man’s name as common as John Smith in America.</p> <p></p><p>After being steady for years, the price of bitcoin has taken off since January of last year, and has been on <a href="https://charts.bitcoin.com/chart/price" target="_blank" title="Bitcoin.com ">an absolute tear since November.</a> At the time of writing, it’s over $9,000 per unit. It first broke the $1,000 threshold on Jan. 1, 2017, and reached $19,000 in December of that same year. Afterward, <a href="https://www.cnet.com/how-to/what-is-bitcoin/" target="_blank" title="CNET">it lost 50% of its value</a>, only to begin a dramatic climb back up.</p> <p></p><p>Since it’s not tied to any bank, bitcoin is unregulated and its control is decentralized. As a result, bitcoin owners remain anonymous. Records of transactions, however, are accessible via a public log. But bitcoin owners’ names are never revealed; only their bitcoin wallet IDs ever become known. (A bitcoin 'wallet' is an encrypted bank account where one’s digital currency is stored.) People can purchase bitcoin through online exchanges hosted by websites like <a href="https://www.coinbase.com/?locale=en" target="_blank">Coinbase</a>, <a href="https://www.bitstamp.net/" target="_blank">Bitstamp</a>, and <a href="https://www.bitfinex.com/" target="_blank">Bitfinex</a>.</p> <p></p><p>It’s not totally safe, however. Bitfinex was hacked in 2016 and <a href="https://www.coindesk.com/bitfinex-bitcoin-hack-know-dont-know/)%20(http://money.cnn.com/2016/08/03/technology/bitcoin-exchange-bitfinex-hacked/index.html" target="_blank" title="Coin Desk ">$60 million worth of bitcoins</a> were stolen. The sheer nature of bitcoin makes them untraceable, revealing another dark aspect of cryptocurrencies: the digital money has become popular among those looking to buy or sell drugs, or other black market products, online.</p> <p></p><p><img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8xODQxMTEyNS9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY3NDAyNDYwMX0.5J1payLNCEaPBdh1sYEKrHBfa37viPwUvKp-AAxiT2c/img.jpg?width=980" id="d2aaf" class="rm-shortcode" data-rm-shortcode-id="ab8bd3f8d398c7c1246365a47d4e6855" data-rm-shortcode-name="rebelmouse-image"></p> <p></p><p><em>Bitcoin’s trajectory over one year, February 14, 2017-18. Credit: Coindesk.com. </em></p> <p></p><p>Can a person give bitcoins as a gift or use them to pay off a debt? A few small businesses accept them as payment for goods and services, and in this way, avoid the vendor charges that come with processing a credit card payment. Due to its decentralized nature, transactions using bitcoins have to be verified, which is where mining comes in. And just as with every resource, there’s scarcity.</p> <p></p><p> </p> <p></p><h2>There's a bitcoin scarcity (on purpose)</h2> <p></p><p>There will only ever be <a href="https://www.huffingtonpost.com/ameer-rosic-/what-is-bitcoin-mining-a-_b_13764842.html" target="_blank" title="The Huffington Post">21 million bitcoin</a> in the world. So far, about 12 million have been mined. It’s estimated that the remaining 9 million remaining will all be mined by the year 2140. Since there’s a finite supply, bitcoins are thought to gain value over time, a fact which has motivated a mining boom.</p> <p></p><p>Miners use computers to solve <a href="https://arstechnica.com/tech-policy/2018/02/in-iceland-bitcoin-mining-will-soon-use-more-energy-than-its-residents/" target="_blank" title="Ars Technica">complex math puzzles</a> in order to verify the bitcoins used in a transaction. The first person to crack the math problem becomes the winner. As a reward, they are usually given <a href="http://fortune.com/2018/02/13/iceland-bitcoin-mining-electricity/" target="_blank" title="Fortune">12.5 bitcoins.</a> Note that a bitcoin goes to eight decimal places. As you might expect, this setup causes some competition among bitcoin miners.</p> <p></p><p>Thousands of miners worldwide compete to mine any single bitcoin transaction. Think about this—every ten minutes a miner earns bitcoins as a reward for verification. The network keeps a record of each bitcoin transaction. These records are bundled together with all the others made within that same time-period. A bundle is called a “block.” Blocks are then entered into the public record in chronological order, which is <a href="https://www.investopedia.com/terms/b/blockchain.asp" target="_blank" title="Investopedia">known as the blockchain</a>. You can check the latest real-time bitcoin transactions through websites like <a href="https://blockchain.info/" target="_blank" title="Blockchain.info">Blockchain.info</a>. </p> <p></p><p><img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8xODQxMTEyNi9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY3MTk3NTUyOX0.n_3fePPbWt0MfGONYMdwzolJ7zq8NvmRHzIop3Y03xY/img.jpg?width=980" id="43019" class="rm-shortcode" data-rm-shortcode-id="52a02fb26233ad4a919e7c4f80eff7f3" data-rm-shortcode-name="rebelmouse-image"></p> <p></p><p><em>A bitcoin mining operation in Russia. Credit: Getty Images. </em></p> <p></p><h2>How bitcoin is mined, and where</h2> <p></p><p>It used to be that anyone could mine bitcoins. And while that's no longer true, you don’t have to necessarily be proficient in computers to mine. You’d need some open source, basic software such as <a href="https://guiminer.org/" target="_blank" title="BUI Miner">GUI miner</a>. As for hardware, you need a motherboard, some graphics processing chips, and fan to cool down your rig. </p> <p></p><p>But today with the heightened interest and the math problems growing exceedingly difficult, outfits with more computing power have come to dominate this activity. It’s gotten to the point where bitcoin mining centers have become the majority of the network. These are places around the world where mining takes place on a large-scale, usually where energy is either inexpensive or free. So operators pack a facility with computers, servers, and cooling devices.</p> <p></p><p>Certain areas of China see many such centers due to free hydroelectric power. But the country is looking to curtail bitcoin mining, which may send operations elsewhere. Canada is one possible location. In Iceland, where bitcoin mining has become a sensation, a number of mining centers have been proposed despite officials warning that they will use more electricity <a href="http://www.bbc.com/news/technology-43030677?utm_source=fark&utm_medium=website&utm_content=link&ICID=ref_fark" target="_blank" title="The BBC">than is required to power all the homes in the country.</a> Johann Snorri Sigurbergsson, the spokesman for Icelandic energy firm HS Orka, told the BBC, “If all these projects are realized, we won’t have enough energy for it.”</p> <p></p><p><img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8xODQxMTEyNy9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYzOTI2MDY3OH0.VxVt9HahHYofVBHxl5cJbN2Kho-mrxDiPg2rn2ZDbA4/img.jpg?width=980" id="8c102" class="rm-shortcode" data-rm-shortcode-id="64ede5060d4cf1cc8a998eb6bbc4965d" data-rm-shortcode-name="rebelmouse-image"></p> <p></p><p><em>Large-scale bitcoin mining centers are low investment. In places with inexpensive or free power, returns can be significant. Credit: Getty Images. </em></p> <p></p><p>Energy is inexpensive in Iceland because it is mainly harvested from renewable sources like wind and hydroelectric power. The small population of the island, just 340,000 people, use about 700 gigawatt hours of energy annually. The proposed bitcoin centers, meanwhile, are expected to consume 840 gigawatt hours of electricity per year.</p> <p></p><p>Since massive amounts of power are used, the environmentally-minded consider the practice extremely wasteful. Bitcoin mining is a smart business model because it requires no staff and a small investment. Moreover, taxes on cryptocurrency mining operations are low, although that may change, as Iceland’s politicians have been made more aware of issues surrounding bitcoin mining.</p> <p></p><p>As Smári McCarthy, an Icelandic member of parliament, told the AP, "We are spending tens or maybe hundreds of megawatts on producing something that has no tangible existence and no real use for humans outside the realm of financial speculation. That can't be good."</p> <p></p><p>One report found that all the cryptocurrency mining occurring worldwide could power Ireland for a year, but those figures may not be accurate. As a result of concerns over power usage and a lack of control over bitcoin overall, some countries such as South Korea are mulling over a system <a href="http://fortune.com/2018/02/13/south-korea-bitcoin-exchange-approval-system/" target="_blank" title="Fortune ">to license and regulate bitcoin transactions.</a></p> <p></p><p>Want to get a look inside a cryptocurrency mining center? Click <a href="https://www.youtube.com/watch?v=OBp5HNarQP4" target="_blank" title="YouTube">here</a>. </p>
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