To properly recognize the relevance of the headline, it is of the essence to understand the historical context and the state of the society, that bitcoins were born into. It is the year of 1991 and digitalization is ever-present. Stuart Haber and W. Scott Stornetta just outlined the first blockchain technology as an attempt to implement a system where document timestamps cannot be tampered with. Two decades later, the first blockchain is conceptualized when it becomes the core component of the cryptocurrency bitcoin which is launched in 2009 by its pseudonymous creator Satoshi Nakamoto. Bitcoin’s ledger is the first actual blockchain, but as we approach the 2020’s, we witness how the technology is starting to spread across the global economy.

Let’s first of all establish a common understanding of the term blockchain: In all its simplicity, a blockchain comprises two elements; a block and a chain. A block represents public information while a chain represents a public database. Thus, a blockchain refers to public information being stored in a public database. To improve complexity and avoid tampering, storage is decentralized and information is spread across a network instead of being stored in one central database. Whenever a new blog is added to the blockchain, every computer on the network will update its blockchain to reflect the change. So, to distinguish one block from another, each block is assigned a cryptographic hash (= a unique identifying code). To form the chain, each block includes the cryptographic hash of the prior block in the blockchain, linking the two. Once a block is added to the blockchain it becomes very difficult to edit and impossible to delete since each block is depending on the prior one. So, blockchains are highly secure, very trustworthy, basically un-hackable and quite intimidating for regular person.

And how did bitcoins fit in again? Well, the bitcoin is the earliest application of blockchain technology as the bitcoin protocol is built on a blockchain. Bitcoins represent an electronic cash system where the currency bitcoin, in theory, can function as a substitute to printed money. In contrary to monetary transactions, bitcoin transactions are verified by a network of computers. The verified transaction is publicly recorded and stored as a block on the blockchain. Given the prerequisite that you have the know-how to analyse the data, a blockchain is publicly available for anyone to observe and potentially interpret. As a concrete example, bitcoin’s blockchain can be accessed on their webpage in a few simple steps and it will provide you with information on exactly when, where and by who the blocks were mined. Personal information however is limited to a digital signature or username so you will never know exactly who is adding blocks to the blockchain.

So, mining (= the process of adding blocks to a blockchain) is not that straightforward. To succeed, the miner must solve a complex mathematical problem; a problem that can only be solved at 1 in 5.8 trillion odds. Note that the miner who is first in solving the problem receive a monetary reward which is naturally an incentive to engage in and invest money in mining. There is an upper limit though to the amount of bitcoins that can be mined; 21.000.000 bitcoins to be exact. The upper limit protects the whole system from total inflation. In the process of mining, computers must run programs that cost them significant amounts of power, energy and.. you guessed it.. money. Now allow me to highlight the following: Participation in the bitcoin blockchain validation process requires specialized hardware and vast amounts of electricity, which translates into a significant carbon footprint. It has been concluded that the entire bitcoin network is responsible for carbon emissions similar to a large western city like Las Vegas.

So I ask you: Did you yet recognize the relevance of the headline?

A society must continuously progress and I believe that digitalization is a fundamental contribution to the development of our society. It is hypocritical, however, if digitalization is no more than a trade-off in the sense that progress in the digital field might just translate into an environmental burden. In continuation, it has been suggested that bitcoin could theoretically put the climate goals of the Paris Agreement out of reach if the cryptocurrency was to become a true global transactional currency due to the carbon footprint of the massive amount of electricity used for mining alone. It is a provocative and uncomfortable announcement that sheds light on subject that must no longer be neglected.

Image source: https://unsplash.com/photos/a8GDO1sWwr8

Author:  Julie Donatzsky-Hansen