May 23, 2022

37. Crypto vs The Environment

Here’s today’s letter

I’ve heard that crypto is bad for the environment, but I have to be honest, I don’t see how. And I’d like to understand a little about this as I’m thinking about getting into investing while the market is down.

Links from today's show: 

Support the show

Welcome back to Spend Donate Invest. I know it’s not just me. There are a lot of things that keep me up at night. Climate change, inequality, poverty. And what surprises me is that we usually talk about how we can vote, or even how we can protest. But I’m curious about the power of our money.

Are there ways that we can use our money in line with some of our other values? That’s what this show is about. You can send in your letters with whatever you’ve been thinking about, and then I’ll do some research, talk to experts, and come back with some thoughts. Hopefully you’ll come across some helpful suggestions, you might laugh, you might think differently than you did before, either way, thank you for being here.

Here’s today’s letter

I’ve heard that crypto is bad for the environment, but I have to be honest, I don’t see how. And I’d like to understand a little about this as I’m thinking about getting into investing while the market is down.

First things first, I’ve said this before on the show, but I’m not your financial advisor, so please talk to someone licensed in your state. I only provide advice to 4 individuals- me, myself, I and sometimes my partner LOL. So what I’m going to focus on here is the first part of your question which is what on earth is the connection between crypto and the environment and is it really that bad.

Why are we even talking about crypto and the environment? What’s the connection? Let’s start from the top. Crypto mining is the process to create and verify cryptocurrency. Computers race one another to process transactions, solving complex mathematical problems. As a reward for this authentication service, miners receive new coins, providing a financial incentive to keep the computers running. So it uses a lot of energy and therefore it costs some money to run these computers, but you do get rewarded in crypto.

But as you know, energy is, relatively speaking, priced kind of cheaply. Water is another resource that is priced cheaply in the US. And there are probably some parallels between both resources and how we aren’t really incentivized to use them sparingly. So it takes a ton of energy to run these processes but energy doesn’t cost much so you spend a little and earn a lot.

Back in the day, back in 2009 you could run your personal computer for a few seconds and mine a bitcoin, which was basically worthless. But nowadays, you’d need a room full of computers and it will take 9 years worth of electricity which would cost you about thirteen hundred dollars and that one bitcoin would be worth about $40k.

There was a study done recently that found that all Bitcoin mining is emitting about as much emissions as the entire country of Greece.

So naturally, environmentalists are raising alarms about this. China started to crack down on crypto mining last year and so a council was formed and as of now, all of the largest publicly traded crypto mining companies say they are now powered by renewable energy or they are building that capability now.

The challenge is that coal-powered energy is really cheap. It’s tempting for crypto miners to want to use that instead. 

And some crypto folks think the solution should be changing all those energy intensive computer processes to begin with. There is a proposal to go to a new method that requires 0.01% of the power required. For you crypto nerds that’s proof of stake versus proof of work. Earlier we talked about how a single transaction takes as much power as your entire household for 73 days. This new way of doing the computer process would reduce that 73 days down to like 10 minutes.

There’s another issue with crypto and the environment that you don’t hear about quite as often. We’ve already talked about how much electricity is needed to run the computer processes, but there’s also an issue with the actual hardware. Computers get faster and faster all the time, so a lot of the crypto machines get thrown away every 18 months or so. That’s a lot of trash. 

So I hope that answers your question. That’s the connection between the environment and crypto. Basically, the computer processes use a lot of power and produce a lot of trash.

There are some currencies that advertise themselves as being more sustainable. For example, Solarcoin, Cardano, Powerledger, Stellar and Nano. There’s a website called Leaf Score you can read about them there, or on another site called The Impact Investor Dot Com. As always, all of the links you might want will be in the show notes.

In terms of trying to decide whether or not you’ll invest in crypto, from an ethical standpoint, from a climate change standpoint, that is a tough one. For a lot of decisions, on this show you’ll hear reminders that we shouldn’t agonize over using plastic straws because what we really need to do is put that same energy towards getting more regulation on the corporations that are doing 99% of the environmental destruction. But for crypto, I’m just not sure, the whole point of that invention is that they didn’t want to be centralized anywhere, they wanted to create something that would by design be almost impossible to regulate. So I’m not sure where that leaves us in terms of putting pressure on them to move towards reducing their environmental harm.

Energy is cheap in China and so a lot of miners were mining in China but then China started cracking down and so miners have relocated to places where energy is cheap. Like Kazakhstan, or Texas. Texas’ power grid is so… messy. If you followed the news last winter when Texans were without power, you may have learned about the way the power grid is set up in that state, but guess what, they offer a lot of discounts that make energy very cheap there. So if you vote in Texas, do put pressure on your politicians to hold them accountable. There are other places in the US where old power plants are being resurrected to provide energy for miners. So stay alert, and make sure your local politicians know that you see what they’re up to. At the end of the day, all politics are local.

Thanks for joining for today’s discussion. You can always send in your questions by emailing the address in the show notes. You might be wondering about how you can support the show. There are a number of ways to do this. You can subscribe, on whatever platform you prefer for your podcasts. You can share an episode with a friend- that’s probably the biggest help you could provide right now. It turns out that’s how people discover podcasts. It’s not me telling people about the show, it’s actually you all- the listeners. You can click on the buy me a coffee link. You can also write a review for the show, or click around on your app and see if it let’s you give the show 5 stars. Thanks for your support and let’s talk again soon.

Tweet- link from show notes