In October 2018, the journal Nature Climate Change made headlines both within the crypto world and beyond after it published a study claiming that within three decades, the carbon emissions of the Bitcoin network alone could push the planet past 2 degrees Celsius of warming — the threshold established by the international Paris Agreement.
While additional research has been released since, showing that much of the Bitcoin network actually relies on renewable energy sources, the initial reporting has been influential in shaping the way in which people understand the role of cryptocurrency within the context of the global climate crisis: The planet is warming, and cryptocurrency is, at least in part, to blame.
However, the truth is that the relationship between crypto and climate is much more complex, as global warming has consequences far beyond how hot summers are. Earlier this month, the United States Commodities Futures Trading Commission released a report on the risk of climate change to financial markets, which reads: “Climate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy.”
This latest report is just one of many pointing to the same thing: The effects of climate change have the potential to impact human society well beyond increases in heat and changes in weather patterns. Some possible impacts include food and water supply disruptions, mass refugee migrations, more frequent pandemics, and increases in regional and global instability, resulting in conflict.
With all that in mind, it becomes clear that reducing the relationship between crypto and climate change to a one-way street in which Bitcoin (BTC) affects the climate but not vice versa is a gross simplification. So, how exactly are the effects of climate change impacting the use and adoption of crypto, and what are some of the potential long-term consequences?
Climate change is already hurting BTC mining
China currently commands a dominating 65% majority of the Bitcoin network’s hashing power, but as the planet continues to warm, the risk of severe weather affecting BTC mining operations rises. In August 2019, major mining pool Poolin reported that its facilities were damaged by heavy rainfall and mudslides. In August of this year, Poolin again reported extensive damage to its facilities. In fact, China has seen its worst flooding in decades this summer, and climate change has been an undeniable contributor.
According to Alejandro De La Torre, the vice president of Poolin, the company’s operations have been severely disrupted by the extreme weather in China and subsequent power and internet outages. “We saw hash-rate drops of between 10% and 20% during the rainstorms,” he told Cointelegraph, adding: “Facilities that were not in the immediate path of the mudslides also experienced severe rain damage to their infrastructure.”
While heavy rainfall is a normal part of China’s monsoon season, as the planet warms, the likelihood and intensity of extreme rainfall events increase. In fact, if the planet warms by 4 degrees Celsius, China is considered to be the most vulnerable country in the world in terms of the potential impacts of flooding events. For each 0.5 C of warming, annual flood losses in the nation are expected to increase by $60 billion.
So, if this trend of extreme weather continues, how will the mining sector respond? De La Torre predicted that miners will have no choice but to adjust to the new normal and factor extreme weather into their operations:
“If this trend of extreme weather continues, then the risk factors for mining farm operators will have to reflect that. This, in turn, might make things like insurance more costly. Alternatively, operators might have to spend more time and effort in choosing the right location of their farms and also increase initial expenditure of their venture.”
Regional instability made worse
One of the less-talked-about impacts of climate change is how it can impact regional and global stability, which subsequently affects the decisions governments make. But societies are complex, and it is difficult, if not impossible, to say that any one specific event is directly caused by climate change.
Michele Orzan, the founder of environmental nonprofit initiative Greenwill and a European digital leader for the World Economic Forum, pointed this fact out to Cointelegraph, adding that when it comes to Bitcoin:
“Climate change, being somehow predictable, and its unwanted effects are not really affecting Bitcoin. […] There is a concern about the possibility that policymakers, and not natural disasters, will disturb more the essence of cryptocurrencies, proposing more restricted regulations against decentralization.”
However, Orzan did point out that “Natural calamities and global emergencies, through feelings of fear, can at the same time lead to more aggressive speculation and increased volatility.”
Venezuela, for example, has been in an economic and political crisis for the past several years, stemming from a drop in oil prices in 2014 that ravaged an already ailing economy. In 2019, the nation’s fiat currency, the bolivar, saw astronomical hyperinflation rates of 10,000,000%. This led many Venezuelans to take their money out of the failing financial system and put it into alternative assets such as Bitcoin, with the total volume of bolivars being taken onto peer-to-peer exchanges increasing by over 350,000% from the start of 2019.
In terms of BTC volume, transactions in Venezuela peaked in February 2019, coinciding with the New York Times publishing an opinion piece titled “Bitcoin Has Saved My Family,” written by a Venezuelan who kept his money in BTC to avoid crippling inflation. In May, cryptocurrency adoption in the country received another boost when startup Cryptobuyer teamed up with payments processor Mega Soft to empower thousands of local merchants to accept tokens such as Bitcoin, Ether (ETH), Litecoin (LTC) and more.
But what is rarely mentioned when discussing the instability in Venezuela is the fact that from 2013 to 2016 — the same period during which oil prices collapsed — the nation received 50%–65% less rainfall than the annual average. Low water levels at the nation’s hydroelectric dams led to frequent electricity disruptions as well as water shortages and rationing in Caracas, Venezuela’s capital and largest city, and elsewhere.
The frequency of such drought events is only expected to increase as the planet warms. While it is impossible to say that the crisis in Venezuela was caused by climate change, what is becoming increasingly clear is that already fraught situations are made much worse by its effects. When a society is already teetering dangerously close to the edge of crisis, climate change may just provide the slight push needed to send it careening off and even drive some people to switch from centralized to decentralized currencies.
Concern over climate change drives people to blockchain technology
It should come as no surprise that millennials are more likely than older generations to consider global warming to be important. Another rarely talked about impact of climate change is that young people look for sustainable investing, driving more companies to take stronger stances on the issue. A 2019 survey conducted by Morgan Stanley found that 95% of millennial investors are interested in sustainable investing, while a more recent study by Stack Funds found that over 50% of Bitcoin investors are millennials.
Two of the most widely recognized benefits of blockchain technology are its transparency and its immutability; they showcase proof to concerned consumers that the company they are purchasing from is not negatively impacting the climate. Alexey Shadrin, a co-founder and the CEO of Evercity — the company managing DAO IPCI, a decentralized autonomous organization working on blockchain-based climate change solutions — told Cointelegraph that younger generations are driving the adoption of blockchain-oriented solutions:
“The request for more sustainable financing options comes mainly from the new generations — more than 2/3 of millennials ask their financial managers to provide sustainable investing options. Considering that blockchain is better widespread among younger generations, we forecast a significant rise in sustainability and climate-related blockchain-powered fintechs in both B2B and B2C people-centric solutions.”
Tom Baumann, the founder and a co-chair of the Climate Chain Coalition — a network of organizations promoting blockchain technology to fight climate change — told Cointelegraph that in his personal opinion, climate change will be a major driver in the adoption of blockchain in the next decade as farmers, energy providers and others find ways to be more efficient in the face of reduced resources. As for concerned consumers, Baumann added that blockchain allows them to track the source and movements of products:
“You can verify that they’re not coming from sources that are under threat or have been compromised one way or the other, so we know they’re not inadvertently contributing to climate [change] or environmental negative impacts.”
Finally, some are jumping on the blockchain bandwagon as a way to prepare for and survive a dystopian or apocalyptic future. Bitcoin has in the past few years earned a reputation among many preppers and survivalists as being equal to, if not worth more than, gold. Earlier this month, entertainer Adam Curry told podcaster Joe Rogan that “the apocalypse is coming, and you’re gonna need a Bitcoin — at least one.”
With 19% of Americans surveyed earlier this year telling YouGov that they think climate change would be the most likely cause of an apocalypse, and with major news publications such as Bloomberg and The Guardian running headlines suggesting people have been preparing for climate catastrophe, it’s very likely that a significant number of people are being driven to the world of crypto.
What’s next?
As the planet’s temperature continues to rise, it’s all but certain that extreme weather and instability will increase with it. The direct results of these changes are already being experienced in the form of more frequent rainfall and flooding, and the indirect effects are contributing to major regional and international crises. But what does this mean for the long-term adoption of blockchain and crypto?
A number of reports point to regional and/or global instability as being a driving force pushing people toward crypto, and the current COVID-19 pandemic crisis has only amplified this belief among some. A study published earlier this year in Small Business Economics offers “support for the view that bitcoin adoption is driven by perceived failings of traditional financial institutions and systems.” The authors of the study added: “We also find greater supply of and demand for Bitcoin infrastructure in years in which countries undergo inflation crises.”
With climate change predicted to be a major driver of instability and a significant influence on the economy in the coming years, with some estimates predicting a 25% decline in global gross domestic product, Bitcoin and other cryptocurrencies may just prove to be the money of the future, after all — with blockchain serving as the backbone.