Cryptocurrency has two faces. Some types are like plodding but reliable workhorses. They simply smooth the way for commercial transactions in the digital age. Speculative crypto is an entirely different animal. In a few short years, crypto mining has planted itself in the rarified atmosphere of the winner’s circle: male, exclusive, and, in terms of environmental and social impacts, absolutely destructive.
Speculation in Bitcoin and other cryptocurrency has monopolized the public conversation, but not all crypto is speculative. Cryptocurrency can serve as a community trading platform that does not rely on third-party, centralized entities for verification.
In this form, cryptocurrency can enable individuals and organizations with common interests to share resources, without shedding an excessive amount of value to profit-taking interests.
One pioneer in this peer-to-peer digital trading area is the Australian company Power Ledger. The company’s business model enables solar array owners to trade their excess solar capacity. The platform enables individual households to participate, as well as organizations and grid stakeholders.
Another good example is the Canadian startup Plastic Bank. The company partners with brands to pay residents in shoreline communities for collecting and returning plastic waste from their beaches. Plastic Bank’s digital currency is pegged to local currency, making it simple to convert and use locally. The digital format also helps protect the earner from being robbed of a paycheck in high crime areas.
The digital “ledger” behind these cryptocurrencies is a form of software called blockchain. Like a shared online document, blockchain enables the buyer and seller to access the same information.
That sounds harmless enough, and it is. The problem is that Bitcoin and other speculative currencies are rigged from the start. Instead of relying on local currencies and nuts-and-bolts transactional platforms to create and maintain a particular value, speculative currencies are digitally mined by a rarified set of individuals with access to the massive amount of computing power needed to generate new cryptocurrency.
Speculative currencies were initially pitched as a more equal, unbiased and democratic form of money, the idea being that anyone with a computer could amass their own currency.
Instead, the opposite is true.
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Last December, the Wall Street Journal reported that 0.01 percent of Bitcoin holders control 27 percent of the cryptocurrency. CBS News further noted that the concentration of traditional household wealth in the U.S. is comparable, with the top 1 percent controlling 30 percent.
NYU Professor of Marketing Scott Galloway cites similar figures in his No Mercy, No Malice blog. Comparing Bitcoin to the NFT market, he wrote that “Bitcoin is even more centralized: The top 2 percent of accounts own 95 percent of the $800 billion supply of Bitcoin, and 0.1 percent of Bitcoin miners are responsible for half of all mining output.”
“If it were a country, Bitcoin would have the greatest inequality in the world,” he observed.
Another emerging issue is the contribution of Bitcoin mining to the climate crisis. Crypto mining became a phenomenon in 2009, and in the relatively short time span since then it has emerged as a disruptor of climate action efforts.
To the extent that speculative crypto is a pyramid scheme, as some allege, the use of renewable energy to assemble large arrays of computing power is a tragic exercise in wheel-spinning at a time when other sectors of the global economy are racing against time to decarbonize.
Even worse is the use of fossil energy for crypto mining. By 2019, researchers were documenting a gaping hole in the cryptocurrency mythos.
“A popular conception of the ‘virtual’ nature of cryptocurrency dominates, but cryptocurrency is deeply embedded in policy and physical environments,” University of Washington researchers Heidi Samford and Lovely-Frances Domingo explained in a July 2019 article.
“And, while most analysis of the phenomenon focuses on the disruptive impact of cryptocurrency on financial markets, cryptocurrency also negatively impacts the communities and the environment,” they added.
It’s not just a problem for vulnerable populations. Last spring, Stanford University professor and Wyoming resident Dave Dodson described Bitcoin as the “gas-guzzling SUV of currencies” due to the concentration of crypto mining in Russian and China, where coal pollution rules are lax. He noted that Wyoming could provide crypto miners with a more acceptable alternative, through its renewable energy and “clean” coal resources.
That sounds good on paper, but the reality is that speculative cryptocurrency could pull the U.S. right back into the pit of environmental injustice, poverty, and poor public health outcomes attributed to the fossil energy economy.
This worst-case scenario is already in motion. In the Finger Lakes region of upstate New York, for example, a little-used coal power plant was finally retired in 2011, only to restart in 2020 as a 106-megawatt, natural gas power plant that runs continuously, day in and day out.
As reported by Gothamist, the electricity goes to 20,000 computers in a Bitcoin operation that realized more than $100 million in Bitcoin revenue last year.”
Local residents and activists have been lobbying to stop the power plant from continuing to leverage its previous permit. Environmental advocates are also pressuring New York Governor Kathy Hochul to impose a statewide moratorium on crypto mining.
In an ironic twist, activists in the Finger Lakes region were in the vanguard of a movement to ban natural gas fracking in the state during the Obama administration, only to see gas powered crypto mining take its place.
Looking at the boom-and-bust cycles of speculative crypto, Salon senior political editor Amanda Marcotte compares it to vaccine refusal and support for former President Trump. She writes that cryptocurrency’s loudest cheerleaders in the U.S. manifest “a “sense of white guy entitlement and a belief that people like them aren't constrained by the same biology and social obligations as everyone else.”
With that in mind, it’s no surprise to find high profile, libertarian-leaning Trump supporters like Peter Thiel continuing to insist that bitcoin is “the most honest market we have in the country,” or that well-known crypto investor Elon Musk appears to be leveraging his Tesla electric car company as a massive greenwashing campaign that offsets bad behavior in his other ventures, including racism at his Fremont, California factory, environmental and community impacts from his SpaceX venture in Texas, and, most recently, a new stake in Twitter that sent his own Dogecoin currency soaring.
“Criticizing and tweaking systems so they work better for everyone is a good thing. But that is not what is going on with modern horrors like cryptocurrency, vaccine refusal, and Trumpism,” Marcotte wrote. “None of those are genuine attempts to fix existing systems. It's about ‘alternatives’ for people who think they are above honoring the basic social contract.”
As Congress begins to assess the energy impacts of crypto mining in the U.S., the political lines have already been drawn, and the illusion of democracy in the crypto area is already fading from view.
Image credit: Art Rachen via Unsplash
Tina writes frequently for TriplePundit and other websites, with a focus on military, government and corporate sustainability, clean tech research and emerging energy technologies. She is a former Deputy Director of Public Affairs of the New York City Department of Environmental Protection, and author of books and articles on recycling and other conservation themes. She is currently Deputy Director of Public Information for the County of Union, New Jersey. Views expressed here are her own and do not necessarily reflect agency policy.