A cryptocurrency (or cryptocurrency) is a digital asset designed to work as a medium of exchange using cryptography to secure transactions and to control the creation of additional units of the currency. Cryptocurrencies are classified as a subset of digital currencies and are also classified as a subset of alternative currencies and virtual currencies.
What is Bitcoin? How did it start?
The word “Bitcoin” was first seen in late November 2008 when Wei Dai wrote about “b-money”, which he described as “an anonymous, distributed electronic cash system”. The first Bitcoin specification and proof of concept were published in 2009 by an unknown individual under the pseudonym Satoshi Nakamoto. Then on January 3, 2009, Nakamoto released version 0.1 of the bitcoin software as open-source code. 21 million bitcoins have been mined so far out of the estimated maximum number of 21 million bitcoins that will ever exist in total. FinancialCentre Broker Dave Goldman explains that the production of bitcoin is a very complex and power-intensive process. So much so that it holds the power to make it experience an all-time low.
What is Mining
The process of spending computing power to process transactions, secure the network and keep everyone in the system synchronized together. It can be perceived as a group of miners who are competing with each other to solve a block (a set of transactions) by solving a mathematical puzzle before any other miner does.
The reward for mining is fixed and only equal to one gram of gold. This was done by design on purpose to ensure that there never will be more than 21 million bitcoins mined which prevents inflation. The difficulty of this task has increased as time goes on, meaning it takes more time/processing power (and thus cost) to mine 1 bitcoin now than it did in 2009!
Mining is a power-intensive process and this is why many people discourage its use. The power used by a single bitcoin transaction could supply a family home in Africa with electricity for more than 10 years and is enough to provide central heating and hot water for 9-10 average North American homes for one winter. It requires over 200 KWh of electricity just to process a block, which at the time of writing totals to about $20 worth of resources. As of November 2017, the bitcoin network’s total electricity consumption is estimated to be equivalent to that of the entire country of Ireland.
In Mr Goldman’s opinion, this is one downside of bitcoin that has caused it immense damage. In order to reduce the Carbon footprint, we can go for more efficient mining hardware or if possible by choosing a different cryptocurrency to invest in. Because many people don’t want to buy hardware, it usually means that they will join a “mining pool”. A mining pool allows them to combine their resources and receive some commission for doing so (all from fees that are paid per transaction). Since a lot of people do this it brings down the overall cost but still contributes proportionally towards the energy usage!
Brazil
When we talk about the reaction of nations towards bitcoin and crypto, we always hear someone say that Brazil was the first to ban bitcoin. This is a lie that doesn’t hold any truth in it (like most of what we hear). In 2014, an administrative judge at Brazil’s tax agency declared that bitcoins and other cryptocurrencies should be considered as goods instead of assets or currencies. This meant that purchases with cryptocurrency were subject to taxes. However, no penalties were issued for non-compliance. At this time, Bitcoin trading volumes in Brazil already accounted for 10% of the global total, making it the second-largest market behind China but ahead of Japan. While crypto was being looked into seriously, there was no way they could overlook the environmental cons.
To put an end to the environmental damage that bitcoin is causing, Brazil has come up with its own Bitcoin ETF (BITH11). Hashdex Asset Management’s new ETF, BITH11, claims to be the country’s first “green” Bitcoin ETF. The new Brazilian ETF for carbon offsets aims to offset the emissions from Bitcoin mining. It is the second fund available in Brazil that allows you to invest in digital currency. Apart from this offering a few days ago, the first entirely Ethereum-based ETF was also approved in an attempt to work towards crypto that is less tough on the environment.
Time For Action
Mr Goldman firmly believes that now is the time that we start thinking along these lines globally because there is no way the crypto community will want to continue on a path that damages the environment. Whether that means choosing mining alternatives or buying and holding crypto, something needs to be done. It’s going to take a community-wide effort to reduce the damage that crypto is doing to the environment and until this happens, Bitcoin will be facing a lot of negative publicity. He said that Brazil should be appreciated globally for investing in the “real” issues.