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Cryptocurrency mining uses huge amounts of energy, but activists are urging for a change in its code to reduce its environmental impact

Wed 26 Apr 2023 05.00 EDT

On the corner of New Yorks Park Avenue and 52nd Street, curious onlookers recently stopped in front of a giant green skull sitting in the bed of a truck parked outside the office of Fidelity Investments, the global financial management company.

The Skull of Satoshi, named after the pseudonymous bitcoin developer Satoshi Nakamoto, is composed almost entirely of computer circuit boards and fitted with tall smokestacks usually found atop coal power plants.

The artifact is a project of artist Benjamin Von Wong and is a reference to the massive amounts of carbon emitted from mining the cryptocurrency bitcoin, an endeavor Fidelity is now pursuing.

Bitcoin is chiefly known as a wild investment vehicle that along with many other cryptocurrencies can seemingly make or lose fortunes overnight in a market where values go up and down quickly and by large margins.

But what worries environmentalists and others is the huge amount of electricity used in generating bitcoin and other such currencies energy that often traces back to fossil fuels and so has a corresponding impact on the climate crisis.

As major financial brands speculate in the cryptocurrency world, environmental campaigners want to make sure they know that they are not just taking a financial gamble; there is also an environmental risk.

Some are hoping that they can persuade those institutions to try to lessen the impact of crypto-mining. Its a big step for a financial institution like Fidelity to launch their own crypto platform. So now more than ever, we need their help, said Rolf Skar, campaign director at Greenpeace USA, a nonprofit environmental advocacy organization.

It is a complex situation. But here is a guide to the key issues.

Bitcoin is a type of cryptocurrency, a decentralized form of currency that is strictly digital rather than physical unlike dollars, pounds or euros. It is managed and traded on a public, open ledger known as a blockchain that records all bitcoin transactions. Though not commonly done, bitcoin can be used to buy material goods.

Because cryptocurrencies such as bitcoin are not centralized, there is no singular authority or body to verify transactions. Instead, participants in the bitcoin network mine, or compete to solve cryptographic puzzles to generate more of the currency. Whoever solves the puzzle the fastest gets to verify transactions for the chance to add the newest batch of them to the blockchain.

The winner is financially rewarded with new cryptocurrency in this process, referred to as proof of work (Pow) the culprit for greenhouse gas emissions.

The Pow consensus algorithm used to verify transactions requires large amounts of electricity which is often produced by burning fossil fuels, emitting carbon dioxide and other greenhouse gases that are heating the planet.

A 2022 report, titled Revisiting Bitcoins Carbon Footprint, conducted by climate and economics researchers across Europe estimates that Bitcoin mining may be responsible for 65.4 megatonnes of CO2 per year which is comparable to country-level emissions in Greece (56.6 megatonnes in 2019).

There is a recent push by some environmentalists to reduce the environmental impact of bitcoin by changing the way it is produced.

So groups like Greenpeace are calling out Fidelity and other financial management and payment process companies that have ventured into bitcoin mining. Hence the recent targeting of Fidelity. Skar said that although Fidelity responded to Greenpeace when the group reached out, the response was lackluster.

[Fidelity] seem not to want to talk about the issue. They declined [our request to speak] so far, but its an invitation for them and others to step up and put resources towards solutions to deal with the problem of bitcoin mining globally. We think it can be done, Skar said.

The solution, Greenpeace argues, is simple: change the computer code that produces bitcoin in order to consume less electricity and reduce its carbon footprint.

This code is open-source, meaning it is publicly accessible to anyone who wants to see or use it.

Rather than a Pow verification process, which requires vast amounts of energy, climate activists are arguing for a less energy-intensive verification process that isnt reliant on speed, such as proof of stake (Pos), used by ethereum another cryptocurrency.

Since bitcoin is decentralized, it has no owner and no one to hold to account for problems the cryptocurrency creates, like wreaking havoc on the environment.

The activists advocating for a code change to bitcoin argue that popular financial services corporations like Fidelity have the clout to incentivize such a change, which would be environmentally transformative.

[Fidelity] doesnt have a climate commitment like other asset managers. Fidelity is the focus because they have been one of the biggest traditional financial players involved in the bitcoin space and they refuse to acknowledge that they have a responsibility and the ability to help fix the problem that bitcoin mining is having on the climate. So this is actually an invitation for them, Skar said.

He called the code change a win for bitcoin and for climate and for communities.

Prominent voices in the bitcoin community and some scholars on the topic dont buy into this solution.

Dr Hanna Halaburda is an associate professor of technology, operations and statistics at NYUs Stern School of Business. Among the classes she teaches are Blockchain and Cryptocurrencies and Foundations of Fintech.

In reference to a hypothetical bitcoin protocol change, Halaburda said: I dont think its going to work. Everybody recognizes [bitcoin] is environmentally unhealthy, but any big changes to bitcoin protocol have been very unsuccessful because you need to get all the miners to agree on that.

Any miners that dont agree with the protocol change can simply reject the new code and continue running the original code that relies on the energy-intensive Pow.

Halaburda said there might be another solution: renewable energy.

A lot of [bitcoin] mining companies have set up their contracts with renewable energy companies. The argument is that having these mining facilities as clients means that when theres an oversupply of energy, it may actually make it more profitable for the renewable energy plants, she said.

This means that these energy companies can mine bitcoin during periods of excess production and oversupply. So instead of letting energy go to waste, money can be made and the wealth can be shared between the cryptocurrency mining facilities and the renewable energy companies with which they have a contract.

Fidelity did not respond to the Guardians request for comment.

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Excerpt from:

Bitcoin is terrible for the environment can it ever go green? - The Guardian

There were many fields of knowledge on which the complex design of Bitcoin could have tripped up: Computer Science (obviously), Economics, Law. You might not have put Philosophy on the list. But at the intersection of Bitcoin and life, it turns out that an important issue for digital money is identityjust as it is for other kinds of money.

Defining personal identity isnt as straightforward as you might have thought. Who am I? is a question that most of us brushed aside once wed passed our teenage years. But Bitcoin forces us to think again: how can I prove who I am?

In almost all ways, the Bitcoin system is a thing of beauty. Its like a work of art in that what has been created through the design of code perfectly mirrors human actions and motivations. The genius is that it is self-regulating. Instead of central bankers or politicians deciding whether to allow more money to be created, the supply of Bitcoin is pre-programmed and therefore entirely predictable.

And instead of needing commercial institutions to facilitate dealings between users, Bitcoin creates a support networkthe mining nodesto monitor and record transactions. Its creator worked out what the miners and the users would want to do and made those actions, such as joining or leaving the network, supportive of the system design.

The only wrinkle lies on the border between Bitcoin-land and the rest of the world. Because although for all practical purposes the system works fine, theres no customer service in Bitcoin. In the unlikely event of something going wrong not so much in the software but in the human behaviour around itwhat can you do?

Well, in the White Paper, Satoshi Nakamoto pretty much says bad luck, theres nothing you can do; and goes on to tout that as one of the selling points. A problem of the conventional finance system, the White Paper claims, is that completely non-reversible transactions are not really possible. In a non-reversible transaction, once money has been spent, its spent.

This was new thinking: most people with conventional bank accounts and credit cards assume that, in the end, mistakes are reversible, even if you can only get the problem dealt with after sitting on the phone for hours and telling someone the name of your first pet. One persons fear of reversible transactions is another persons confidence that nothing can go too far wrong.

Banks invite us to set up accounts with passwords, codes, PINs and many other systems that demonstrate to the institution that we are who we say we are and not somebody else trying to get their hands on our account. When we first register an account we have to ground the arrangements in a legally-required KYC (know your customer) process by producing copies of our drivers licence or passport, and maybe a letter from a utility company showing where we live. We have to give the bank confidence that theres a solid connection between our online identity and the physical world.

But in Bitcoin identity is firewalled from the transactions themselves. Who you are isnt Bitcoins problem, in the way that the banks and payment services have accepted that it is their problem. Bitcoin provides a robust mechanism for owning and transmitting money through private and public key pairs but the question of who is behind those private keys isnt part of the system design.

In a thoughtful post on Medium recently, Simon Bettison examined the various ways in which the connection between identity and ownership has been demonstrated over the years. He points out that when someone signs a document by hand, it doesnt matter that their signature is different every time: it is not the form of the signature, nor its accuracy that matters, but the identity of the person that is producing the signature.

In the digital world, things are both worse you can even sign using standard fontsand betterthere is more associated evidence around online signing than is carried on a piece of paper.

Similarly, in Bitcoin, the signature is only valid when it is made by the rightful owner of the coins in question; otherwise it is part of a fraud. Commenting on Bettisons post, Dr Craig Wright mentions the historic importance of witnesses to signatures. They are people who, in theory, would be willing to attest to the correct identity of the person signing, reinforcing the idea that its not by examining the physical signature itself that the declarations it makes can be confirmed.

For both Bitcoin and conventional money then, validating identity is personal rather than physical (in pre-digital days) or technological (today). For all their elaborate checks and balances, even for banks, identity is a bit fuzzy round the edges. If I have forgotten my passwords, special numbers or whatever, then Ill probably end up having to remember my volunteered factsgrandmothers maiden name etc. But what if I cant remember them either? The process doesnt just shut down at that point, but it would become more and more demanding, ending up in court.

The British government has a helpful page on its business website about how to prove identity. It offers this definition: an identity is a combination of attributes (characteristics) that belong to a person. A single attribute is not usually enough to tell one person apart from another, but a combination of attributes might be. It makes the point that knowing someones identity is not binary; its about levels of confidence.

Even the most process-driven organisations have to live with this kind of vagueness. I recently spoke to my broadband provider and wasnt able to let them check my identity by giving them the figure for my latest bill (because I was calling to tell them the broadband was broken) and I had forgotten my memorable word. In the end, they accepted who I was because I could tell them my bank account number, but that only seemed to be at the discretion of the person I was talking to, who happened to be in a good mood.

When you sign up to a Bitcoin wallet, you are urged to write down your twelve seed words, and to make sure not to lose them. That all-or-nothing warning has led people to conclude that if you lose those words, or access to whatever other system more user-friendly wallets may offer, then you have lost your money. And for most practical purposes, thats true.

But those twelve words are just Bitcoins version of quill-pen signatures. They attest to ownership and are the practical means by which the rights of ownership are exercised, but they are not in themselves ownership. A crook may have found your piece of paper with the twelve words on it.

At this point in the argument, its usual to bring out the car keys analogy: just because I have the keys to a car, it doesnt mean I own it. Which is fair enough, but let me put the counter-argument, which is often forgotten but also true and is relevant to the question of identity.

If I am walking down the street with a friend and they claim that a fancy-looking parked car is theirs, if they bring a key out of their pocket, open the door of the car, invite me to get in and drive us away, Id be 99 percent sure that it was their car. If instead of that, they claimed it was theirs but walked past and then got someone on the phone to assure me that they had witnessed my friend buying the car, Id be less convinced. Most people are honest and so possession is a pretty good, albeit not infallible, proof of ownership.

Bitcoin was designed to solve the problem of making, as it says in the opening paragraph of the White Paper, small, casual transactions. Why not big ones? Well, you can use it for big ones, but then the question of who you are dealing with and what you can do if something goes wrong becomes more important. If I buy something for a couple of pounds in a car boot sale, I dont mind never being able to find who I bought it from. But I wouldnt buy a car that way. This was the great insight of Pierre Omidyar, the founder of eBay: most people are honest. If the idea of sending money to someone you cant trace and hoping they will send back what you have bought from them seems crazy, he said, well, try it and youll find it almost always works.

In the Bitcoin world its the same. Those carefully-guarded private keys or wallet passwords will, except in edge cases, quite satisfactorily indicate the owner of the coins, just as, for the purposes of ordinary business, my bank believes that if someone logs on with my passwords, then its me. Identity is laborious to prove and if we had to do it all the time, ordinary life would grind to a halt. But fortunately criminals are the exception, not the rule.

Dr. Craig Wright on CoinGeek Conversations: On the very start of Bitcoin

New to Bitcoin? Check out CoinGeeksBitcoin for Beginnerssection, the ultimate resource guide to learn more about Bitcoinas originally envisioned by Satoshi Nakamotoand blockchain.

Link:

Who am I? How Bitcoin and banks live with the problems of identity - CoinGeek