In an earlier article, NFK looked at a kind of digital money called a cryptocurrency. The article explored the popular cryptocurrency Bitcoin, and how it works. Today, NFK looks at some of the serious problems related to Bitcoin.
Ideas covered in the earlier article on Bitcoin:
Bitcoin is a kind of digital money that allows people around the world to pay each other quickly without involving a bank or government. People use a special app called a “wallet” to store Bitcoins or to pay someone. All the records of every Bitcoin payment ever made are kept in a public “ledger”. Anyone can get a copy of the ledger.
There are many kinds of cryptocurrencies, but the most famous one is Bitcoin. To keep things simple, this article will focus on Bitcoin. Most other cryptocurrencies are similar to Bitcoin.
(Source: Bitboy [Public domain], via Wikimedia Commons.)
The biggest problem with Bitcoin is that it’s a huge energy hog. Experts say that a single Bitcoin payment uses enough electricity to power a US family home for a month.
The reason for this is to make sure Bitcoins are valuable. Usually, things that are common aren’t valuable. Gold is hard to get, but sand isn’t. So gold is worth a lot more than sand. To keep Bitcoins rare and valuable, the Bitcoin system limits the number of Bitcoins that can be created.
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The biggest problem with Bitcoin is that it’s a huge energy hog. Experts say that a single Bitcoin payment uses enough electricity to power a US family home for a month. Bitcoins are hard to create so they will stay rare and valuable. Above, a powerful Bitcoin “mining” computer.
Creating Bitcoins is called “mining”. To mine a Bitcoin, users solve complicated math challenges that require lots of computing power and time. As more Bitcoins are made, the work needed to mine each Bitcoin gets harder.
The system was designed to keep things fair – users must do some “work” to create “money”. This work helps make sure the ledger is correct. But the work also uses massive amounts of energy and adds to the pollution causing the climate crisis.
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As more Bitcoins are made, the work needed to mine each Bitcoin gets harder. Around the world, Bitcoin miners are using large racks of powerful computers to create as much Bitcoin as possible. Above, a Bitcoin mining factory in Russia.
Around the world, Bitcoin miners are using large racks of powerful computers to create as much Bitcoin as possible. Currently, Bitcoin uses more energy in a year than the entire country of the Philippines.
Countries have reacted to Bitcoin in different ways. In September, China banned cryptocurrencies, making mining illegal. Before that, about 70% of all Bitcoin was mined in China. China is planning its own digital currency. But it’s also facing an energy shortage.
(Source: Screenshot, Cambridge Bitcoin Electricity Consumption Index.
In September, Bitcoin became one of the official currencies of El Salvador. The move made it easier for people outside the country to send money to people in El Salvador. But the move wasn’t popular, and has caused problems.
One of these problems affects all Bitcoin users: the value of Bitcoin can change wildly. Many Bitcoin buyers hope that Bitcoin will be worth more over time. In general, that’s true. Last week, Bitcoin reached its highest price ever.
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In September, Bitcoin became one of the official currencies of El Salvador (above). The move made it easier for people outside the country to send money to people in El Salvador. But the move wasn’t popular, and has caused problems.
But don’t expect Bitcoin to stay the same. In March, one Bitcoin was worth over $60,000. By July, it had dropped to less than half of that. People who own Bitcoin can become suddenly rich – or suddenly poor.
Another way Bitcoin owners can become poor is through their wallet. Wallets are usually protected by a difficult password called a key. If a user forgets their key, they lose all of their Bitcoins. They can also lose their money if someone else discovers their key or breaks into their wallet.
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The value of Bitcoin can change wildly. In March, one Bitcoin was worth over $60,000. By July, it had dropped to less than half of that. People who own Bitcoin can become suddenly rich – or suddenly poor. Above, a graph of Bitcoin’s price from February to May of this year.
If lots of people are using Bitcoin for payments, governments can miss out on taxes. Because Bitcoin payments are secret, lots of exchanges happen that the government never learns about.
That secrecy also makes Bitcoin popular with criminals. Using cryptocurrencies, criminals can send and receive money worldwide without anyone finding out. Recently, serious computer attacks called “ransomware” have been booming. It’s no surprise that the criminals always ask for payment in cryptocurrency.
Did You Know…?
Remember, Bitcoin is just one of many cryptocurrencies. Together, their environmental impact is far greater.
In spite of the major problems created by Bitcoin and other cryptocurrencies, they’re becoming more popular. More and more banks, credit cards, stores, and businesses are allowing users to pay with cryptocurrencies. Most users don’t realize that using cryptocurrencies makes the climate crisis far worse.