Sustainability Analysis of Cryptocurrencies Based on Projected Return on Investment and Environmental Impact
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CitationMARTYNOV, OLGA. 2020. Sustainability Analysis of Cryptocurrencies Based on Projected Return on Investment and Environmental Impact. Master's thesis, Harvard Extension School.
AbstractCutting edge technology behind cryptocurrency can revolutionize payment systems and transform the global economy. However, data shows cryptocurrencies major limitation, such as the significant energy consumption due to the high computing power requirement (De Vries, 2018). Moreover, recent study published in Nature claims that increasing carbon dioxide emissions from Bitcoin mining alone could lead to a 2° C increase in global mean average temperatures within 30 years (CRS, 2019). The definition of the circumstances under which cryptocurrencies evolution could be beneficial, or scenarios when it becomes a dramatic burden on society is needed. This research aims to estimate cryptocurrencies’ benefits by comparing its market value against its electric costs and associated social and environmental externalities in ten years from now.
My research examines cryptocurrencies true profitability through cost-benefit analysis and evaluates its environmental footprint, utilizing a range of scenarios and various models. To address my research questions, I test two hypotheses. First, if cryptocurrencies’ adoption rate follows the broadly used technologies growth pattern scenario, then in ten years, cryptocurrency’s mining will require more electricity than consumed by the entire United States in 2018. Secondly, if the penetration of renewable energy into the electricity supply mix used by mining remains at current levels, I project that cryptocurrencies’ fossil fuels consumption growth will lead to carbon dioxide emissions reaching 2018 United States CO2 emissions mark (5,269MMmt) (EIA, 2019).
The findings of this study show that by 2028, amount of cryptocurrencies market value needed to support economic activities will expand from current $240 billion to a range between 2.4 trillion USD to 2.9 trillion USD. The rising electricity requirements to produce cryptocurrencies could lead to likely electricity consumption of 293TWh (equivalent to 1 % of US energy consumed in 2018). This electricity consumption level would generate electricity costs ranging between 23 to 57 billion USD per year and carbon emissions ranging between 53 to 63.6 MtCO2.
The research results do not suggest that cryptocurrency is “burning down the planet”, but the negative externalities identified in the research should be considered. For example, the results illustrate a scenario where each 1 USD of cryptocurrency coin value created would be responsible for 0.66 UDS in health and climate damages. The externalities discussed in this study can be valuable for the development of standards around disclosure practices and in setting the right rules concerning adoption of blockchain and encrypted currencies.
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