Cryptocurrencies: are Bitcoin and altcoins sustainable?
Bitcoin is the first cryptocurrency, a digital currency released on the Internet. It is a decentralised P2P payment network powered by users. Hence, it has no central authority or middlemen. And it runs on Blockchain, which is a decentralised and public ledger of every transaction made on the network. Satoshi Nakamoto, an unknown programmer (or a group of programmers), created it in 2009.
Bitcoins are mined. Kind of like gold, but in a digital way. The miners are individuals and organisations with powerful computers who keep the Blockchain consistent, complete, and unalterable. By repeatedly verifying and collecting new transactions into a new group of transactions called ‘block’. Miners are in fact record-keepers, rewarded with bitcoins.
On October 5th, 2009, New Liberty Standard opened a service to buy and sell Bitcoin (BTC). Then you only needed around 0.00076 USD to buy 1 BTC. The rate was derived from the cost of electricity used by a computer to mine the currency. At the end of November 2017 you need around 10,000 USD to buy 1 BTC.
Bitcoin is the most used cryptocurrency. However, there are now many alternative cryptocurrencies on the Internet. The main ones are Ether, Dash, Monero and Ripple. People refer to them as ‘altcoins’. To qualify as cryptocurrency they need to exist within a P2P network, and not to be issued by a central authority.
Ether runs on the Ethereum platform, one of the most interesting developments in Fintech. Ethereum is a project for smart contracts, computer protocols allowing two parties to enter into a contract without a middleman. Bitcoin may disrupt banking, Ethereum may disrupt many sectors.
Ether is a form of payment made by the clients of the platform to the machines executing the requested operations, according to Ethereum. Ether is actually a ‘token’ that can be used as a currency – or represent digital securities and more.
There are between 3 to 6 million users of cryptocurrencies, according to Cambridge University. It is not a big number, relatively speaking. But it is growing fast. The fast raising prices of Bitcoin and altcoins are an indication of the kind of traction they are getting.
The interest of banks and even central banks is another indication of it. However, people are rising some questions on many aspects of cryptocurrencies, including the sustainability, scalability, governance (or lack of) and Initial Coin Offerings (ICOs).
On August 1st 2017, Bitcoin split in two: the original Bitcoin and Bitcoin Cash. Some investors and miners were behind it. They were not happy with the developers who refused to increase the number of transactions the cryptocurrency can handle: seven transaction per second (tps). Visa handles 4000 tps at peak times.
Furthermore, there are only 21 million bitcoins that can ever be mined, regardless of the demand. (Unless the developers agree to change the protocol and increase the supply.) This makes Bitcoin deflationary, something economists say is not a good thing for a unit of account.
Finally, the Bitcoin Energy Consumption Index suggests that potential energy usage per transaction could be as high as 94 kWh. Enough electricity to power three US households for a day or to charge a Tesla Model S, according to Motherborard. Visa uses about 0.01 kWh per transaction, according to ING.
This year (to date), Miners of bitcoin have used more energy to mine bitcoins than 159 countries combined, according to Business Insider. Most Bitcoin miners operate in countries where energy is cheap. China mines more than 80% of the total network, according to eToro. Most of the electricity generated in China comes from fossil fuels…
At the same time, there are some altcoins being launched that actually aim to make the world economy more sustainable. For example, SolarCoin. A Blockchain-based currency, backed by cryptographic proof of work. As well as a 3rd party verified meter reading representing 1 MWh of generated solar electricity!
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