Categories: Tech

Bitcoin collapses: what it means for the environment (and El Salvador)

The value of Bitcoin has suffered a new collapsewalking down below 24 thousand dollarsi (approximately 21.5 thousand euros) for each single cryptocurrency. Half of what it was worth in March, just over a third of its maximum value of $ 69,000 in November 2021. But the drop in Bitcoin’s value isn’t just impacting investors’ pockets: it also affects the environment and citizens of El Salvador. In a completely different way.

Collapse of Bitcoin, the impact on the environment

Verifying the creation (mining) of Bitcoin with the blockchain and the transactions carried out with the coin require an enormous amount of energy. According to Digiconomist data, when the cryptocurrency reached its maximum value last November, the expected annual consumption was between 180 and 200 TeraWatts per hour (TWh). How much does all the data centers of the world consume: the impact of the currency was equal to the environmental cost of the entire cloud world.

The higher the prices, the greater the incentive to mine cryptocurrency. Higher emissions. According to the crypto-savvy economist Alex De Vries, if the price of Bitcoin remains above $ 25,200, consumption will remain around 180 TWh. This is because production continues to be affordable for miners. But a price under $ 24,000 (21.5 thousand euros) makes the unprofitable mining, reducing the number of operations. The result, according to De Vries, would be 170 TWh.

That seems little. But it would be like suddenly one nation like Ireland stopped producing greenhouse gases.

It all depends on the market

But Bitcoin’s impact on the environment won’t change for a single collapse if the cryptocurrency rises again. De Vries explains that “If it were just a one day crash, then nothing will change.” But if this were not the case, the impact in terms of emissions could be drastically reduced.

Bitcoin production depends on the use of specialized hardware to solve increasingly complex mathematical puzzles, in order to limit production to a precise rate of growth. Therefore the large amount of energy required is part of the mining process. If it cost less, it would be too easy to offset the blockchain ledger by producing large amounts of currency.

However, the market is making it less and less convenient to produce the currency. And the same goes for the second best known crypto, Ethereum, which uses the same type of evaluation. So potentially the energy savings could be even greater.

The collapse of Bitcoin is good for the environment, but not for investors or El Salvador

While the environmental impact of this collapse is positive, those who invested in cryptocurrencies are having a hard time right now. If large investors (so-called ‘Big Wallets’), despite losing millions, can hold up and wait for a market recovery, there are manysmaller investors who will feel the negative effect of the investment.

But perhaps no one is regretting investing in crypto as much as the President of El Salvador Nayib Bukele. The country has invested in Bitcoin in search of greater financial independence, a big problem for the country. However, El Salvador has abought 420 Bitcoins in October 2021 for $ 60,300, which are now worth less than half. And he also lost value when he bought 500 crypto on May 9, when it was worth $ 30,700.

At the moment, therefore, the country has invested 105.6 million dollars, to have a Bitcoin wallet which today are worth about 53 million. Halved the investment in a few months. Sure, Bukele can hope that by holding his Bitcoins tight, the price will rise again. But he would have to at least double just to get even.

The collapse of cryptocurrencies is having increasingly significant impacts, also due to the expansion of the market. Yet in a few months we find ourselves commenting on new records in the positive and then new records in the negative. The fact that the overall market value is broader it does not change the risks for investors. Nor those for the environment.

Published by
Walker Ronnie

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