Cryptocurrency price collapse offers hope for slowing climate change – here’s how


Cryptocurrencies like bitcoin were meant to be used as digital cash. Instead, they’ve become popular as speculative investments. As well as being resource-intensive and inherently wasteful, cryptocurrencies are also incredibly volatile. Prices for the largest cryptocurrencies, bitcoin and ethereum, have both dropped by over 55% in six months, leading some to suggest that regulation is needed to contain the turmoil.

Some are blaming sliding prices on one specific contagion, a collapsing “stablecoin” called TerraUSD which is supposed to be pegged to the US dollar. But the current cryptocurrency market crash is more likely a combination of lots of factors.

 For years, interest rates have been close to zero, making bank bonds and treasury bills look boring as investments, while cryptocurrencies and digital non-fungible tokens (or NFTs) linked to artwork, look appealing. However, the US Federal Reserve and the Bank of England recently increased interest rates by the largest amount since 2000.

Continuing COVID controls and Russia’s invasion of Ukraine have also sobered up the markets. Bitcoin was designed to be indifferent towards governments and banks, but investors generally aren’t. They’re cutting sources of risk from their portfolios and dumping crypto.

Crypto’s loss, climate’s gain?

Bitcoin (a “proof-of-work” cryptocurrency) uses roughly 118.47 terawatt-hours (TWh) of electricity over a year – more than all the domestic refrigerators in the US combined.

Proof-of-work mining can be thought of as a controlled way of wasting energy. The process involves specialist computers repeatedly taking random shots at guessing a long string of digits. The amount of computing power dedicated to this effort is referred to as the network’s hash rate.

If the hash rate drops for any reason, because of power cuts or price dips, for example, the difficulty of the guessing game is automatically adjusted to ensure the network can find a new winner every ten minutes. Each winner then gets a go at verifying transactions occurring on the network and is awarded 6.25 newly minted bitcoins.

A shelf filled with computer servers and wires.
Crypto mining farms like this need a lot of power. Nikiforaw77/Shutterstock

Whether the guessing game is profitable or not depends on how much the mining outfit has paid to set up their computers and for the energy to run them. Recent research indicates that when China cracked down on bitcoin mining in August 2021, bitcoin’s carbon intensity increased by around 17%, with only 25% of bitcoin miners using renewable energy and over 60% relying on coal and natural gas. Estimates vary, however. A survey by the Bitcoin Mining Council (an industry body) of roughly half of all miners in the first quarter of 2022 claimed total renewable energy use (including nuclear) was 58%.

The higher the cryptocurrency price, the more cash mining outfits are prepared to waste on this electricity, until the costs of winning outweigh the rewards. With the bitcoin price falling, the financial incentive to waste energy for mining bitcoin should be lower. In theory, that’s good for the climate. But, surprisingly, the network’s hash rate (and carbon footprint) remains very close to its all-time high, averaging around 200 quintillion hashes per second. The scale of this continued interest means bitcoin mining at current prices is probably still profitable. But for how long?

Tipping points and death spirals

Bitcoin’s value has temporarily dropped below the estimated cost of production several times before without significant long-term damage to the hash rate. But should the market stagnate for long enough, proof-of-work cryptocurrencies will start to see an increasing number of miners capitulate.

Miners with the highest costs are likely to sell off their bitcoin holdings as profitability drops, creating even more selling pressure in the market. Short-term capitulation among smaller mining outfits with high costs (often using intermittent renewable energy) is normal.

But a domino effect with major mining firms closing down one after another could cause crypto prices, and the network’s carbon emissions, to drop rapidly towards zero. This event is called a bitcoin death spiral in crypto-speak.

Besides bitcoin mining price predicaments, there are other potential tipping points to consider. Many big investors, especially those who bought in at higher prices, are currently underwater – weighed down with big bags of bitcoin.

El Salvador’s president, Nayib Bukele, has reportedly just brought his country’s total reserve of bitcoin up to around 2,300, or about US$72 million at current prices. His country’s crypto losses are adding to fears of an imminent debt default that would cause significant pain to those who had no say in their leader’s gamble.

Bitcoin ban or boycott

Mining outfits and crypto developers have taken advantage of economic instability, weak regulations and access to cheap energy in the past. Locals wanting to use these resources for productive purposes can be priced out by bitcoin miners. These communities also tend to face the sharp end of the climate crisis, which crypto mining fuels.

Steam rising from a cooling tower at a coal-fired power plant.
Energy demand from crypto miners has restarted mothballed coal plants in some places. EPA-EFE/Friedemann Vogel

Governments worldwide want to appear keen on cryptocurrencies as tools for economic growth. But the crash shows that bitcoin is both useless as a mainstream means of exchange and as a reliable store of value.

In the aftermath of the 2008-10 global financial crisis, governments promised a crackdown on toxic financial instruments with make-believe valuations. For the global climate and a stable economy, cracking down now on crypto is a good idea. But if environmental regulation efforts are not globally coordinated or far-reaching enough, crypto’s climate contagion could continue to grow.

This article was updated to clarify the estimates of energy consumption by bitcoin mining.

Like the gig economy, crypto gaming is sold with promise of convenience and riches. In practice it’s deeply exploitative

 Video games are increasingly incorporating blockchains, the decentralised databases that underpin cryptocurrencies, as well as NFTs and other “digital assets”. New games are emerging expressly to support blockchain technology, while traditional games are being updated to incorporate blockchains.

As of October 2021, “crypto gaming” accounted for more than half of the blockchain activity over that quarter. At the same time, a treasury inquiry has led to consumer groups calling for regulation in the crypto market.

Crypto evangelists say blockchains are the future of gaming, and crypto gaming is ushering in “Web3” – the so-called next iteration of the internet built on blockchain technology. How true are these promises?

How video games use blockchains

The advent of crypto gaming roughly coincides with the rise of the Ethereum blockchain, launched in 2015.

Ethereum emerged as a platform for building and hosting of decentralised apps (applications designed to run on a blockchain, rather than a singularly owned computer network), as well as ownership over digital assets within those apps.

Video games have a history of sophisticated virtual economies. Games such as World of Warcraft and EVE Online – where items are bought and sold for virtual currencies – became a popular test case for these Ethereum features.

A gamer plays World of Warcraft on a PC, with just their arm and the screen visible.
World of Warcraft players can use in-game currency to trade items such as mounts, weapons, pets and armor, and can convert this back to fiat. Shutterstock

The promise of ‘retaining value’

A common model in crypto games is to include two types of crypto tokens. One is a governance token, which generally allows players a say in the governance of a game, and in some instances a share in its revenue. The other is a utility token, which is used to perform certain actions within the game.

Game assets (such as a sword or an e-sports trading card) can also take the form of non-fungible tokens (NFTs), with each unique token represented on the blockchain.

It’s common for NFTs and governance tokens to double as speculative assets that can be bought and sold across crypto or NFT exchanges. But it’s questionable whether they have any fundamental value. Many gaming tokens are at best volatile and at worst worthless.

Yet proponents of crypto gaming try to sell it as the future. Take crypto venture capitalist and Reddit cofounder Alexis Ohanian, who says crypto gaming will allow players to “actually earn value” through accruing assets that have some value in traditional or “fiat” money.

In essence, he says people would no longer need to “waste time” gaming for leisure. Crypto gaming advocates often don’t understand why one might play games for no reason other than to have fun or unwind (or myriad other motivations).

In the crypto gaming vision, play becomes the act of seeking “valuable” tokens, and extending the game into a 24/7 market that pressures players to constantly seek profit. This marketisation of all activity is the very thing that has turned so many off of crypto gaming, and crypto more broadly.

The notion of retaining value is also framed in terms of developers and audiences being better remunerated for making and playing games. On game-distribution platforms such as Phantasma, developers deposit a given amount of the platform’s cryptocurrency in exchange for having their game hosted.

But it’s difficult to see how this differs from the current model, in which distributors charge a flat fee. In fact, hosting in exchange for cryptocurrency is arguably more problematic when you consider that token prices are subject to volatility.

 Some people, including Web3 advocate Greg Isenberg, believe blockchain-enabled games might redistribute some of the revenue generated by game companies to players.

Players create value for these companies through practices such as “modding” (which refers to modifications, and other in-game activities), and even by contributing to a game’s culture.

Isenberg and others claim blockchains would provide a reliable record of players’ contributions, and therefore help set up a base for remuneration.

Playing to earn

An increasingly common pitch from blockchain game projects is “if tokens are valuable, then play itself can become a form of work”. Players can “play to earn” (commonly referred to as “P2E”).

The best known example is Axie Infinity, a Pokémon-style game where playing yields tokens that (at least at some point) had a high monetary value.

Read more: Microsoft buys Activision Blizzard: with the video game industry under new management, what's going to change?

In one podcast on P2E games (hosted by the venture capital fund Andreesen Horowitz, which has invested heavily in them), Gabby Dizon, the co-founder of a P2E gaming guild, claimed P2E was a “way to escape … economic hardship”.

Like the gig economy, P2E promises convenience, flexibility and prosperity at a time of widespread immiseration. Also like the gig economy, it’s deeply exploitative in practice.

As recently reported, Axie and other companies like it have a setup in which players must buy an expensive NFT before they can even start playing and participating in the P2E model.

A popular business tactic among some wealthy investors is to lease out their Axies (which are linked to NFTs) and take a cut of any money made by players, many of whom are from developing countries such as the Philippines. The result? All but the best players end up earning below minimum wage.

Responses from industry

Some traditional game developers have embraced blockchains. Last year, French gaming giant Ubisoft launched its own crypto gaming platform called Quartz.

Others have been reluctant. Big distributors including Valve have rejected blockchains, whereas Epic Games has embraced them under strict conditions.

Many indie game developers have pushed back, saying blockchains (and particularly NFTs) are scams that have a disastrous environmental impact, and which exacerbate the negative effects of capitalism.

A crash in the crypto market earlier this month has seen most crypto gaming tokens lose value. Yet this hasn’t deterred fervent investment.

More importantly, ups and downs in the crypto market don’t affect the fundamental problems in the value proposition of crypto gaming.

While blockchains and Web3 are viewed as an investment opportunity by large tech companies and investment funds, ordinary people continue to get scammed out of their money.

Cryptocurrency price collapse offers hope for slowing climate change – here’s how

    Email   Twitter 28   Facebook 122   LinkedIn  Print Cryptocurrencies like bitcoin  were meant to be used  as digital cash. Instead, they...