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Nathan Cooper is an Associate Professor of law at the University of Waikato.
Michael Dizon is Senior Lecturer in law at the University of Waikato.
ANALYSIS: Since its launch in 2009, Bitcoin and other cryptocurrency have experienced explosive growthSome dramatic downturns.
Cryptocurrencies now inhabit an increasingly prominent niche in the global financial landscape, offering “pastime” opportunities for young investors, channelling donations to Ukraine’s war effortOr simply offering cheaper and quicker alternatives to mainstream banking.
The Reserve Bank of Aotearoa New Zeland recently made the following decision: investigate cryptoAs part of a larger conversation about how New Zealanders will save and pay in the future.
So far, crypto has benefited from light regulation in New Zealand, but it’s essential we have a clear picture of all pros and cons, including the risk of criminal behaviour and climate change impacts.
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There has been a rise in calls to regulate cryptocurrency so that they are more environmentally friendly.
Although cryptocurrencies offer many benefits in terms of transaction and investment, there are growing concerns about the potential dangers. Crypto’s volatile track record presents significant risk to investors (alongside significant reward) and the relative anonymity of Bitcoin, Ethereum and others is proving attractive to organised crime, money laundering and tax evasion.
Crypto has so far largely avoided traditional financial regulation banks face. It has also capitalized on its ability to transcend territorial borders and be everywhere and everywhere at once.
As more people call for effective regulation, major markets in Asia, the EU, and the US seek to Cryptography is subject to greater oversight, it is particularly important to highlight crypto’s growing but often hidden environmental impact.
Bitcoin consumes more energy than many countries
How can companies with virtual assets contribute to environmental destruction? Data mining is the solution.
Blockchain technology is used to create cryptocurrencies and assets. Transactions are recorded and verified on a blockchain. This is a public digital ledger that includes information about all transactions.
Blockchain technology is able to ensure the integrity of crypto transactions. However, it does this by using large amounts of electricity. Bitcoin’s annual electricity consumption is more than Three times more than New Zealand. This is due to blockchain’s distributed nature and use of cryptography and complex processing, which require considerable computational power.
Verifying transactions, or mining, is so energy intensive it has caused concerns about the resilience of some countries’ electricity supply. Kazakhstan was one of the first to adopt this approach earlier in the year. Cut off crypto miners because of the country’s energy crisis.
The connection to climate change becomes more apparent when crypto uses electricity that is generated from fossil fuels. Recent developments in America are a warning sign. Crypto’s colossal energy needs may be met by electricity from coal-fired power stations, at a time when the energy sector should pivot towards renewables.
In Kentucky, a new crypto “Blockchain farm” is being built close to four coal-fired power plants, for easy energy supply. Another is being built in the meantime. Montana coal-fired power plantThe company, which was once on the brink, was saved by agreeing to supply electricity to Marathon, a Bitcoin mining company. This allowed them to add hundreds of thousands of tonnes of carbon dioxide to our atmosphere.
Climate change and cryptocurrencies
Climate change is a critical issue that must be addressed immediately. New Zealand announced last year its Nationally Determined Contribution. Reduce emissions by 50%As part of our collective efforts to limit global temperatures rising to 1.5 degrees Celsius above pre-industrial levels, we will be able to maintain the 2005 levels by 2030.
This is an improvement on the previous pledge, but Climate Action Tracker still rates New Zealand’s overall contribution to climate change mitigation as “Highly insufficient”.
The most recent ReportThe Intergovernmental Panel on Climate Change (IPCCThe following report, released last month, details the effects of exceeding the 1.5 degree Celsius target. These include an increase in heat-related deaths and diseases for humans and animals, loss of livelihoods, a drop of income from agriculture, and the loss of low-lying coastline areas due to rising sea levels. Inaction on climate change will have serious consequences, even for those living close to home.
A recent survey by a SurveyMost New Zealanders are open to taking action to combat climate changes. But all too often people’s lifestyle decisions still seem disconnected from their environmental impacts. It is difficult to know what people can do to effect positive change.
To make informed and responsible decisions about crypto, New Zealanders must have a clear understanding of how our investment and consumer decisions impact the environment. Public and private sectors should explore more environmentally friendly blockchain technology based on “proof-of-stake” which uses less energy because of lower processing requirements.
Indeed, the European Parliament considered banning the more energy-hungry “proof-of-work” mechanism Bitcoin and other popular cryptocurrencies use. Although the European Parliament rejected the proposal, cryptocurrencies will most likely be incorporated into existing legislation. Face further scrutinyThe EU is trying to tackle climate change.
Aotearoa also requires a future-oriented regulatory framework in order to limit the use energy-hungry encryption and promote a safer and more sustainable model of consumption and production for the planet.
This article was originally published on The Conversation. Read the original article.
