Preying on the poor? Opportunities and challenges for tackling the social and environmental threats of cryptocurrencies for vulnerable and low-income communities

https://doi.org/10.1016/j.erss.2021.102394Get rights and content

Abstract

The rate of adoption of some cryptocurrencies is triggering alarm from energy researchers and social scientists concerned about the industry’s growing environmental and social impacts. In this paper we argue that the unsustainable trajectory of some cryptocurrencies disproportionately impacts poor and vulnerable communities where cryptocurrency producers and other actors take advantage of economic instabilities, weak regulations, and access to cheap energy and other resources. Globally, over 100 million people hold cryptocurrency, mostly as a speculative asset. The digital infrastructure behind the most popular cryptocurrency, bitcoin, currently requires as much energy as the whole of Thailand, with a carbon footprint exceeding the gold mining industry. Should bitcoin’s mass adoption continue, an escalating climate crisis is inevitable, disproportionately exacerbating social and environmental challenges for communities already experiencing multiple dimensions of deprivation. In mitigating these impacts, the paper considers 4 potential regulatory pathways, including: 1) promoting voluntary private-sector commitments to using only renewable energy, 2) encouraging a system of voluntary carbon offsetting, 3) using existing financial regulations and tax frameworks, and 4) imposing national and/or international bans on cryptocurrency ‘mining’. The paper argues that effective environmental regulation of cryptocurrencies is urgently required, both to reduce the threat of catastrophic climate change, and to help the world’s poorest towards sustainable development. However, regulating cryptocurrency mining in any context is likely to require a combination of efforts and is unlikely to result in win-win outcomes for all.

Introduction

Since the advent of bitcoin in 2009, the use of cryptocurrencies has increased significantly. Estimates suggest that 106 million people (roughly 1.3% of the global population) have used bitcoin at least once [1]. Others suggest there are around 25 million ‘active’ cryptocurrency users [2]. Maintenance of the bitcoin network requires significant material resources. As of November 2021, bitcoin is using more energy than the whole of Thailand (around 190 TWh), the majority of which is generated from fossil fuels [3], emitting approximately 90 Mt CO2e per year [4]. This is up from around 22 Mt CO2e annually just two years ago [5]. This now significantly exceeds the carbon emissions produced by the gold mining industry [6]. Today, a single Bitcoin transaction has an electrical energy footprint roughly equal to the total energy consumed by a US household for two months [7]1. The cryptocurrency is unsustainable by design. In producing new bitcoins, using large amounts of electrical energy is incentivised through a process known as Proof-of-Work (PoW) mining. The PoW consensus protocol is an intentionally energy-inefficient mechanism designed to promote behaviour in the interest of the network, whilst securing a blockchain from bad-actor interference [8]. With such a significant and growing footprint, PoW cryptocurrencies, like bitcoin, are threatening global commitments for mitigating carbon emissions [9]. Predictions suggest the network could be responsible for emitting upto 131 Mt CO2e per year in the mid-term [10], [11]. Bitcoin’s growing energy footprint correlates strongly with its dollar value, but even without the forecasted growth, PoW mining already has consequences for human health and climate. Research indicates that for every $1 of value created by Bitcoin’s energy use, $0.49 needs to be spent on mitigating the network’s associated environmental issues and remedying other associated public health problems [12].

There is near-unanimous consensus in the academic literature asserting that PoW cryptocurrencies cause significant challenges for meeting global sustainable development goals. However, some argue the technology offers opportunities for helping towards poverty reduction globally, enabling strong political institutions [13], providing clear property rights, and tackling corruption [14], whilst promoting entrepreneurialism and equal opportunities [15]. In this paper we show how PoW cryptocurrencies disproportionately impact vulnerable and developing communities globally, where PoW miners and other actors take advantage of economic instabilities, weak regulations, and access to cheap energy and other resources. Around 1 third of PoW miners are currently in countries with a Human Development Index (HDI) score below 0.85 [16]. Some of the world’s poorest and most vulnerable people are likely to be those disproportionately impacted by PoW mining’s local social and environmental issues (see Fig. 1)2.

Combined with the most optimistic climate scenarios for the end of the century, bitcoin’s growth and inefficiency will likely play a significant part in placing the poorest parts of the world at the threshold of catastrophe [18]. Several provincial bitcoin mining bans across China in 2021, including Inner Mongolia, Xinjiang, Yunnan and Sichuan provinces, have forced much of the country’s mining infrastructure to relocate. The bans followed a nationwide crackdown imposed due to safety and climate change concerns from associated coal mining activities [19]. Where Chinese mining operations relocate to developing countries, for example towards less politically stable ex-soviet borderlands, electricity supplies are often accessed illicitly, fuelling conflict over resources [20]. The exodus is also impacting opportunities for sustainable livelihoods, for example in Democratic Republic of Congo (DRC) where local people are outcompeted by bitcoin miners for access to cheap renewable energy [21]. As mining operations use vast amounts of highly specialised and short-lived hardware, obsolete equipment is likely to cause additional damage to the environment and human health, especially in developing areas where much of this hazardous electronic waste (e-waste) is disposed [22].

Without robust regulation, bitcoin’s increasing price and associated level of adoption will continue to cause harm globally. To mitigate these impacts, this paper considers the challenges in developing potential regulatory pathways for effective social-environmental management of bitcoin and other PoW cryptocurrencies. Histories of colonialism, including imposition of neoliberal structural reforms, have placed many vulnerable communities at the frontier of cryptocurrency production [23], [24], [25]. Economic instability, inadequate tax policy frameworks, and weak regulatory institutions are also encouraging increased levels of adoption within communities with the least resilience towards both economic and climatic shocks [24].

The following section offers a short introduction to PoW mining, before discussing the challenges and trade-offs in relation to 4 potential pathways for regulating it. These pathways include: 1) promoting voluntary private-sector commitments to mining with only renewable energy, 2) encouraging a system of voluntary carbon offsetting for miners and users of PoW cryptocurrencies, 3) using existing financial regulations and tax frameworks, and 4) imposing national and/or international bans on PoW mining. The paper concludes by summarising the key social and environmental benefits of effective action.

Section snippets

Proof-of-work / proof-of-waste

PoW cryptocurrencies, like bitcoin, rely on a global network of several million competing specialist computers [26]. These bitcoin miners, like safe-crackers, repeatedly guess the combination to a digital lock (a long string of digits) with the computer guessing the correct combination winning an ever-decreasing number of new bitcoins. The combination changes as miners successfully create new blocks, every ten minutes on average. The number of bitcoins released with each new block halves every

Voluntary private-sector commitments to PoW mining with renewable energy

In April 2021, with the endorsement of the UN High-Level Climate Champions, a Crypto Climate Accord was voluntarily established by 3 companies advocating profitable innovations for financial regulation, energy and resource efficiency [36]. The founders had all adopted a critical stance towards government regulation that could bring about significant costs for financial technology companies [37]. Any prospective partners working in the crypto industry were invited to sign, support or participate

PoW mining with voluntary carbon offsetting

Voluntary options have also been established for cryptocurrency exchanges and third-party intermediaries. Personal carbon footprint calculators and offsetting websites have been around for some time, though several specialist brokering sites have recently offered offsetting services specifically for PoW cryptocurrency investors. Examples include Impact Scope8, which allows investors the opportunity to donate funds using Bitcoin or Litecoin to finance forest conservation

Using existing financial regulation and tax frameworks

Truby [9] argues that more mandatory fiscal tools can effectively provide the incentives required to promote behavioural modifications among blockchain developers and PoW miners to reduce energy consumption. These environmental tools could occur while governments impose ‘Anti-Money Laundering’ (AML) / ‘Know Your Client’ (KYC) requirements for crypto exchanges that could ultimately negate the privacy use case for many PoW cryptocurrencies, lowering their market value and disincentivising their

Banning PoW cryptocurrencies

Unlike voluntary mechanisms, national and international bans tackle the drivers of anthropogenic CO2 emissions associated with PoW mining. At the time of writing, a number of countries have banned the holding of any cryptocurrencies, including Egypt, Morocco, and Bolivia. China has banned Bitcoin mining on explicitly environmental grounds. However, this has had adverse impacts in other countries, including coal rich areas of Kazakhstan where purpose-built coal-fired power plants have been

Conclusions: social and environmental benefits for regulating PoW mining

PoW is a blockchain consensus protocol that allows the decentralised networks behind some cryptocurrency projects to agree account balances and the order of transactions. PoW also ensures that blockchains are difficult to attack or overwrite. However, the amount of energy required to run PoW cryptocurrencies as well as the energy mix of PoW mining operations, make them highly polluting. They are also difficult to scale without third party applications, sacrificing aspects of their decentralised

Declaration of Competing Interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

References (98)

  • P. Howson et al.

    Cryptocarbon: the promises and pitfalls of forest protection on a blockchain

    Geoforum

    (2019)
  • P. Howson

    Building trust and equity in marine conservation and fisheries supply chain management with blockchain

    Marine Policy

    (2020)
  • A. de Vries

    Renewable energy will not solve bitcoin’s sustainability problem

    Joule

    (2019)
  • A. de Vries et al.

    The true costs of digital currencies: exploring impact beyond energy use

    One Earth

    (2021)
  • P. Howson

    Distributed degrowth technology: challenges for blockchain beyond the green economy

    Ecol. Econ.

    (2021)
  • K. Wang, Measuring Global Crypto Users: A Study to Measure Market Size Using On-Chain Metrics. [Online] crypto.com....
  • Chainalysis, Market Intel. [online] Available at: https://markets.chainalysis.com/ [Accessed 01 May...
  • A. Blandin, G. Pieters, Y. Wu, T. Eisermann, A. Dek, S. Taylor, D. Njoki, 3rd Global Cryptoasset Benchmarking Study –...
  • Digiconomist. Annualized Total Bitcoin Footprints. [online] Available at:...
  • Wood Mackenzie, 2021.Is gold turning green?. [online] Woodmac.com. Available at:...
  • J. Gong et al.

    Cryptoeconomics

    (2020)
  • S. Jiang et al.

    Policy assessments for the carbon emission flows and sustainability of Bitcoin blockchain operation in China

    Nat. Commun.

    (2021)
  • N. Kshetri

    Will blockchain emerge as a tool to break the poverty chain in the Global South?

    Third World Quarterly

    (2017)
  • E. Barinaga

    A route to commons-based democratic monies? embedding the governance of money in traditional communal institutions

    Front. Blockchain

    (2020)
  • CBECI Cambridge Bitcoin Electricity Consumption Index. [online] cbeci.org. Available at 2021 <https://cbeci.org/>...
  • D. Kriebel et al.

    The precautionary principle in environmental science

    Environ. Health Perspect.

    (2001)
  • UNFCCC Climate Change Is an Increasing Threat to Africa. [online] Unfccc.int. Available at 2020...
  • P. Howson, Bitcoin: China’s crackdown isn’t enough – only a global effort can stop crypto’s monstrous energy demand....
  • H. Smith, The Shady Cryptocurrency Boom on the Post-Soviet Frontier. [online] Wired. Available at:...
  • P. Howson, Bitcoin isn't getting greener: four environmental myths about cryptocurrency debunked. [online] The...
  • J. Crandall

    Blockchains and the “Chains of Empire”: contextualizing blockchain, cryptocurrency, and neoliberalism in Puerto Rico

    Des. Culture

    (2019)
  • P. Howson

    Climate crises and crypto-colonialism: conjuring value on the blockchain frontiers of the Global South

    Front. Blockchain

    (2020)
  • O. Jutel

    Blockchain imperialism in the Pacific

    Big Data Soc.

    (2021)
  • D. Phillips, How Long Does it Take to Mine One Bitcoin? (2021) – Decrypt. [online] Decrypt. Available at:...
  • V. Forti, C. Balde, R. Kuehr, G. Bel, The Global E-waste Monitor 2020: Quantities, flows and the circular economy...
  • P. Howson

    Tackling climate change with blockchain

    Nat. Clim. Change

    (2019)
  • M. Huillet, Bitcoin Will Follow Ethereum And Move to Proof-of-Stake, Says Bitcoin Suisse Founder. [online]...
  • S. Chaudhary, Bitcoin Mining Council Officially Open Now, Calls Energy Consumption 'feature, Not A Bug'. [online]...
  • B. Piven, Crypto Climate Accord: Bitcoin greenwashing or game-changer?. [online] Aljazeera.com. Available at:...
  • J. Barefoot, Crypto and Climate: Energy Web CEO Jesse Morris — Jo Ann Barefoot. [online] Jo Ann Barefoot. Available at:...
  • CCA Crypto Climate Accord. [online] Crypto Climate Accord. Available at 2021 <https://cryptoclimate.org/> [Accessed 12...
  • Q. Dupont

    The politics of cryptography: bitcoin and the ordering machines

    J. Peer Product.

    (2014)
  • S. Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, 2008....
  • T. Christiaens

    The crypto-theology of Friedrich Hayek

  • BMC Bitcoin Mining Council. [online] Bitcoin Mining Council. Available at 2021 <https://bitcoinminingcouncil.com/>...
  • N. De. Michael Saylor: Mining Council Will 'Defend' Bitcoin Against 'Uninformed' and 'Hostile' Energy Critics. [online]...
  • Luxxfolio, Luxxfolio signs Crypto Climate Accord, reflecting commitment to green cryptocurrency mining and exchange....
  • A. DeNisco Rayome, Why data centers fail to bring new jobs to small towns. [online] TechRepublic. Available at:...
  • U.S. Census, U.S. Census Bureau: Navajo County, Arizona; Arizona; United States. [online] Census Bureau. Available at:...
  • Cited by (26)

    View all citing articles on Scopus
    View full text