Crypto price collapse offers hope for slowing climate change: Here's how

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Cryptocurrencies like bitcoin were meant to be used as digital cash. Instead, they’ve become popular as speculative investments. As well as being resource-intensive and inherently wasteful, cryptocurrencies are also incredibly volatile. Prices for the largest cryptocurrencies, bitcoin and ethereum, have both dropped by over 55% in six months, leading some to suggest that regulation is needed to contain the turmoil.

Some are blaming sliding prices on one specific contagion, a collapsing “stablecoin” called TerraUSD which is supposed to be pegged to the US dollar. But the current cryptocurrency market crash is more likely a combination of lots of factors.

For years, interest rates have been close to zero, making bank bonds and treasury bills look boring as investments, while cryptocurrencies and digital non-fungible tokens (or NFTs) linked to artwork, look appealing. However, the US Federal Reserve and the Bank of England recently increased interest rates by the largest amount since 2000.

Continuing COVID controls and Russia’s invasion of Ukraine have also sobered up the markets. Bitcoin was designed to be indifferent towards governments and banks, but investors generally aren’t. They’re cutting sources of risk from their portfolios and dumping crypto.

Crypto’s loss, climate’s gain?

The most polluting “proof-of-work” cryptocurrencies, like bitcoin, ethereum and dogecoin, together use around 300 terawatt-hours (TW/h) of mainly fossil-fuelled electricity each year. Bitcoin has an annual carbon footprint of around 114 million tonnes. That’s roughly comparable to 380,000 space rocket launches, or the annual carbon footprint of the Czech Republic.

Proof-of-work mining can be thought of as a controlled way of wasting energy.