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What Is Cryptocurrency Mining And How Does It Hurt The Environment?

In recent years, cryptocurrency has experienced significant growth. From Bitcoins to NFTs, it has garnered enthusiasts’ support. However, it has also faced criticism from numerous detractors who highlight the adverse environmental effects associated with virtual currencies, particularly crypto mining.

But what exactly is crypto mining? How does it hurt the environment? And what is the Malaysian context?

Cryptocurrency In A Nutshell

A cryptocurrency is a digital or virtual currency secured by cryptography. It is nearly impossible to counterfeit or double-spend cryptocurrency. Many cryptocurrencies operate on decentralised networks powered by blockchain technology. They rely on a distributed ledger enforced by a network of computers[1].

“Crypto” means hidden and that refers to this currency’s intended usage. As cryptocurrencies are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation, users are able to secure online payments without the use of third-party intermediaries[1].

Despite its popularity, not every ecommerce site allows payments to be made using cryptocurrencies. In fact, cryptocurrencies, even popular ones like Bitcoin, are hardly used for retail transactions and are largely more popular as trading and investing instruments that can, to a limited extent, be used for cross-border transfers[1].

The idea of a digital currency has been floating around for some time. The earliest noteworthy digital currency may be Digicash, which failed to gain traction in the 1990s[2].

The first modern concept of cryptocurrency emerged in 2008 with the release of a white paper that explains the foundations of blockchain and bitcoin. The author of the white paper is “Satoshi Nakamoto,” who may or may not be a pseudonym for a person or group of people[2].

This then-new form of currency utilised a technology called “blockchains”. Often called a “triple-entry” bookkeeping system, every time a new transaction is made –– following mutual agreements and confirmation from the sender, receiver, and a third party – it is recorded into a block that is then added to a chain of other blocks in a linear fashion[2].

Bitcoin’s creation would eventually lead to the birth of new cryptocurrencies working on the same blockchain technology, including the popular alternative, Ethereum, which has the second-largest market cap in the crypto market[2].

What Is Crypto Mining?

Source: PCMag

Of course, this currency doesn’t come from nothing. This is where crypto mining comes in – the process by which new cryptocurrency units are created. As you can imagine, no drills or pickaxes are involved. Instead, computer processors do all the hard work, chipping away at complex maths problems[3].

Crypto mining works by unlocking a block on a blockchain. To unlock a block, a computer will first need to validate it by solving a complicated equation, usually in the form of something called a hash. A hash is a random set of characters and numbers that, with the right key, reveal the original message[3]. Once the solution has been found and the block is unlocked, the computer will receive the next block in the chain, beginning the process all over again[4].

Cryptocurrency mining is painstaking, costly, and rarely rewarding. As the “motherload” attracted gold miners to California during the Gold Rush, crypto mining has magnetic appeal for many investors interested in cryptocurrency as miners receive rewards for their work with crypto tokens[4].

Indeed, as of March 2022, Bitcoin was priced around $39,000 (RM178,971) per bitcoin, which means you’d have earned $243,750 (6.25 x 39,000) (RM1,118,568.75) for completing a block[4].

Bad News For The Environment?

Source: How-To Geek

Unsurprisingly, crypto mining has also led to increased worries about environmental effects.

Detractors often point to the high energy usage of cryptocurrency mining as one of its main flaws.  The Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin used an estimated 85 Terawatt-hours (TWh) of electricity (0.38% of global electricity use) and about 218 TWh of energy (0.13% of global energy production) at the point of production — more than Belgium and Finland, using the latest country energy estimates from 2019[5].

And just a single transaction generates 1088.94kg of carbon dioxide, equivalent to 2,413,459 VISA transactions or 181,489 hours of watching Youtube[6].

As people continue upgrading and throwing away old equipment, electronic waste will only keep piling up. In fact, a single transaction alone produces 289.80 grams of e-waste, equivalent to the weight of 1.77 iPhones 12 or 0.59 iPads[6].

The noise pollution generated by crypto mining is also worth noting, as a single mining rig is capable of producing up to 90 decibels of sound, louder than a washing machine or leaf blower. And a room full of these devices can easily disrupt the peace and quiet of residential areas[7].

Source: The Star

A Grey Area In Malaysia

Cryptocurrency currently occupies a grey area in Malaysia.

Technically, cryptocurrency and mining are legal in this country. But it is not recognised as legal tender in the country so cannot be used to pay for goods and services. It is, however, recognised as an intangible commodity and profits made from trading it can be taxed[7].

Because of this, cryptocurrency mining has become increasingly popular in the country over the past decade. This was demonstrated in 2021 when a subsidiary of Hatten Land signed a definitive agreement with Singapore’s Frontier Digital Asset Management to share proceeds from jointly operating at least 1,000 cryptocurrency mining rigs at the group’s properties in Malaysia[8].

It must be noted, however, that Malaysian crypto-mining farms rely on coal-fired power plants to generate the electricity needed to power their mining rigs. Besides the above-mentioned carbon dioxide emissions, coal extraction and transportation involve deforestation, habitat destruction, and water pollution, leading to ecological degradation and loss of biodiversity[9].

According to Mohideen Abdul Kader, president of the Consumers’ Association of Penang (CAP), a rig with three graphic cards (graphic processing units) can consume up to 1,000 watts of power or more when in operation[10].

In 2018, the Malaysian Statistics Department stated that the country’s electricity generation was largely dependent on coal (46%) and natural gas (39.7%). This means that generating electricity is not at all environmentally friendly, producing large quantities of carbon dioxide, a greenhouse gas, that contributes to global warming.

According to TNB, its carbon dioxide output is expected to increase between 2018 and 2023 because of the addition of new coal and gas electricity generation plants. – Mohideen Abdul Kader, president of the Consumers’ Association of Penang[10]

Moreover, crypto mining requires massive cooling systems to prevent mining equipment from overheating, especially in Malaysia. Cooling systems typically use water, which can cause water scarcity and contamination, particularly in areas with limited water resources such as Kedah or Kelantan[9].

The still-growing demand for cryptocurrency in Malaysia will only escalate crypto mining’s environmental impacts. As such, it is not just crucial but urgent that the government and policymakers implement sustainable solutions that balance economic development with environmental protection.

Only by finding balanced solutions to both problems can Malaysia achieve long-term economic and environmental sustainability.

Explore our sources:

  1. J. Frankenfield. (updated 2023). Cryptocurrency Explained With Pros and Cons for Investment. Investopedia. Link.
  2. E. Rosenberg. (updated 2022). History of Cryptocurrency. The Balance. Link.
  3. F. O’Sullivan. (2021). What Is Crypto Mining, and How Does It Work? How-To Geek. Link.
  4. E. Hong. (updated 2022). How Does Bitcoin Mining Work? Investopedia. Link.
  5. N. Reiff. (2022). What’s the Environmental Impact of Cryptocurrency? Investopedia. Link.
  6. J. Bogna. (2022). What Is the Environmental Impact of Cryptocurrency? PCMag. Link.
  7. N. Albakri. (2022). QuickCheck: Is cryptocurrency mining illegal in Malaysia? The Star. Link.
  8. V. Subramaniam. (2021). Hatten Land agrees to operate 1,000 crypto mining rigs in Malaysia. The Business Times. Link.
  10. A. Dermawan. (2022). Cancel proposal to supply electricity to cryptocurrency mining operators, CAP tells TNB. New Straits Times. Link.

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