News: Bitcoin prices are rising and also mining. As cryptocurrency prevails, its carbon footprint cannot be ignored. Read the news here.
Let’s Understand In Simple Language:
There has been a rapid expansion of cryptocurrencies over the years. In 2019, the global cryptocurrency market was approximately $793 million. It’s now expected to reach nearly $5.2 billion by 2026, according to a report by Facts and Factors, a market research organization.
But this increase in the use of cryptocurrencies has an environmental impact too. The mining of these digital currencies requires a large amount of energy. This energy requirement is fulfilled by traditional sources like the burning of coal.
This mining is a process that Bitcoin and several other cryptocurrencies use to generate new coins and verify new transactions. It involves vast, decentralized networks of computers around the world that verify and secure blockchains. In return for contributing their processing power, computers on the network are rewarded with new coins, which is a very energy-intensive process.
Based on data from the Bitcoin Energy Consumption Index from Digiconomist, the carbon footprint of Bitcoin, is equivalent to that of New Zealand, with both emitting nearly 37 megatons of carbon dioxide into the atmosphere every year.
The carbon footprint of a single Ethereum transaction as of December 2021 was 102.38 kilograms of CO2, which is “Equivalent to the carbon footprint of 226,910 VISA transactions or 17,063 hours of watching YouTube,” according to Digiconomist. Meanwhile, the electrical energy footprint of a single Ethereum transaction is about the same amount as the power that an average US household uses in 8.09 days, the website further states.
Read more about the Cryptocurrency situation in India by clicking here.
What is Cryptocurrency?
Cryptocurrency is a digital currency that uses codes i.e. cryptography to make it more secure. This security makes it impossible to counterfeit or double spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
Watch this video to know cryptocurrency in detail:
Advantages and disadvantages of Cryptocurrency
Cryptocurrency has the following advantages
- Funds transfer between two parties will be easy without the need of third party like credit/debit cards or banks
- It is a cheaper alternative compared to other online transactions
- Payments are safe and secured and offer an unprecedented level of anonymity
- Modern cryptocurrency systems come with a user “wallet” or account address which is accessible only by a public key and pirate key. The private key is only know to the owner of the wallet
- Funds transfer are completed with minimal processing fees
Cryptocurrencies have the following disadvantages.
- Questions related to the topic:The almost hidden nature of cryptocurrency transactions makes them easy to be the focus of illegal activities such as money laundering, tax-evasion and possibly even terror-financing
- Payments are not irreversible
- Cryptocurrencies are not accepted everywhere and have limited value elsewhere
- There is concern that cryptocurrencies like Bitcoin are not rooted in any material goods. Some research, however, has identified that the cost of producing a Bitcoin, which requires an increasingly large amount of energy, is directly related to its market price.
Questions related to the topic:
Q. Economic enthusiasts are lauding the ingress of digital currency. However, there are certain environmental effects of these too. Elucidate. (250 words).
Q. What are the advantages and disadvantages of the use of cryptocurrency on a large scale. (250 words)
Q. What are cryptocurrencies? What is the risk associated with them? What is India’s position on cryptocurrencies? comment. (250 words)
Q. Consider the following statements regarding cryptocurrencies.
- Crypto Currency is an encrypted centralized digital currency.
- These currencies are regulated by central monetary authority.
Which of the statement(s) given above is/are correct?
A. 1 only
B. 2 only
C. 1 and 2 both
D. Neither 1 nor 2
Answer: D
Q. Which of the following is not a type of cryptocurrency?
A. Litecoin
B. Bitcoin
C. renminbi
D. Gridcoin
Answer: C
Q. Bitcoin is a _____________ currency ?
( A ) Digital Currency
( B ) Cryptocurrency
( C ) De-centralized
(D ) All of the above
Answer : D