Why has Iran banned crypto mining, and what does it tell us about its impact of on the environment?
What’s New?
President of Iran, Hassan Rouhani on Wednesday said that the mining of cryptocurrencies has been banned in the country. The ban is effective immediately until September 22. This move has been done as the country is facing major power blackouts in many cities.
Mining
Before we understand how cryptocurrency mining is consuming loads of energy, we need to understand what it actually means? On a side note, if you need to understand the basics of blockchain and cryptocurrency, please read this article.
So, what is cryptocurrency mining? It is the process of verifying cryptocurrency transactions and recording them in the public blockchain ledger. The blockchain ledger is essentially a digital recording of all transactions, made in chronological order. These verifications are made by miners, and they do this verification by running complex mathematical equations through high-powered computers. Once they solve the equation, they can add the transaction to the blockchain.
What do miners earn by mining cryptocurrencies? They get rewarded in cryptocurrencies like bitcoin and this mean they can earn bitcoin and make money from it without actually purchasing it. As of November 2020, The i Paper wrote, a miner receives a reward of 6.25 bitcoins for every transaction added to the blockchain. At the time of writing this article, that is equivalent to over $230,000.
The Cost
But all this mining comes with a cost — a monetary cost and an environmental cost. According to a report from Germany’s Institute for Economic Research, an estimated $5 billion of costs had been sunk into mining by the beginning of 2018, but this didn’t include all the costs paid by society — not least the more than 80% of Americans who do not own cryptocurrencies, writes, Bloomberg.
Cryptocurrency mining takes a toll on the environment too because it consumes loads of energy. An analysis by the University of Cambridge suggested that the bitcoin network uses more than 121 terawatt-hours (TWh) annually, which would rank it in the top 30 electricity consumers worldwide if it were a country.
According to a 2020 study by ScienceDirect, results indicate that in 2018, each $1 of bitcoin value created was responsible for $0.49 in health and climate damages in the U.S and $0.37 in China. Charles Hoskinson, CEO of leading cryptography firm IOHK, told The Independent, “Bitcoin’s carbon footprint will get exponentially worse because the more its price rises, the more competition there is for the currency and thus the more energy it consumes.”
Zooming Out
According to a 2020 study by ScienceDirect, results indicate that in 2018, each $1 of bitcoin value created was responsible for $0.49 in health and climate damages in the U.S and $0.37 in China. Charles Hoskinson, CEO of leading cryptography firm IOHK, told The Independent, “Bitcoin’s carbon footprint will get exponentially worse because the more its price rises, the more competition there is for the currency and thus the more energy it consumes.”
So, this shutdown could be an attempt to curb illegal crypto mining. If you are asking if crypto mining is taking a big toll on its electricity supply, why is the country shutting it down only for four months and not forever? The answer is revenue. According to a recent report by analytics firm Elliptic, bitcoin mining yields up to $1 billion worth of revenue and this money can be used to lessen the impact of harsh United States sanctions, writes, Al-Jazeera.
At the end of the day, cryptocurrencies might be changing the way how the financial industry works, but we also can not ignore the impact it has on the environment and the hidden costs that have to be borne by the countries and its people.
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