Cryptocurrencies vs. Fiat Currencies; Which One is Greener?

Money oversees the majority of activities individuals intend to fulfill in their daily lives. By taking coins or paper money, fiat currencies can operate as legal payment tools regulated by a government. Cryptocurrencies began to feature in the market more than a decade ago to replace the traditional financial system with an advanced mode of transacting.

Despite uplifting most users’ lives and living standards, digital and fiat currencies portray specific impacts in the global environment. Generally, the environmental conservation topic surrounds common natural causes. Thus, they include pollution and the solutions we implement when minting and maintaining money in circulation. 

Bearing that in mind, we set out to uncover the most eco-friendly alternative between fiat and cryptocurrencies, with minimal harm to the environment.

General View of Fiat Currencies on the Environment

Environmental sustainability today is highly reliant on the type of monetary system ruling a country. Fiat currencies are most often under government regulation, meaning that any decision made by those in power, whether destructive or beneficial. As such, it will directly impact environmental status. For instance, in recessions, the USA spends enormous resources to revive the amount of wealth lost during that period. 

Among the resources bound to be used include a vast amount of carbon that the Federal Reserve needs to create money. Following the recession situation in 2008, carbon worth 16,500TW/h was destroyed. Moreover, this was without adding to the other 15 previous recessions that the USA has gone through.

Coin Production 

Processing a coin from raw ore to the minting procedure presents certain negative impacts on the environment. Smelting the metal composition of metals such as zinc and copper causes direct harmful emissions and incurs governments more money to process these coins. Some countries, including Canada, Brazil, and Finland, moved to eliminate coins because of their rising manufacturing cost compared to face value. 

A closer look into the environmental footprint suggests that ore extraction also consumes numerous amounts of power. In Alaska, for instance, the Red Dog Mine operates as an open-pit entity that emits hazardous substances to the environment. The action involved the mine in constant battles of toxic waste and water pollution over the years. Furthermore, Zinc metal undergoes complex procedures before it can be lacquered with copper, which gives coins a shiny surface once they dry. 

This process generates byproducts such as sulfur dioxide, which, to some extent, may pose respiratory complications. Thus, while coins may represent financial value or symbolize cultural value to collectors, their actual production process drifts away from adopting greener solutions.

What About Cryptocurrencies?

Cryptocurrencies are classified as digital representations of money which run on blockchains. Depending on the consensus mechanism employed, digital currencies can show different effects on the global ecosystem. 

  • Proof of Work Cryptocurrencies

Under PoW-based cryptos such as Bitcoin, miners in the blockchains network compete in solving complex mathematical algorithms to validate transactions. Therefore, acquiring powerful mining equipment and vast amounts of electricity becomes necessary to compute these algorithms, add transactions to blocks, and earn rewards in return. 

While Bitcoin may be a profitable digital asset to invest in, its carbon emission rates violate the global fight against climate change. For example, the Cambridge Bitcoin Electricity Consumption data suggests that Bitcoin consumes about 148TWh in a year. That energy level surpasses countries such as the Netherlands or Sweden have in terms of consumption. Another study points out that Bitcoin mining in China alone could emit 130 million metric tons of carbon by 2024. 

Therefore, PoW cryptos and processes can release harmful substances that lead to global warming or respiratory illnesses. At the same time, it can be a wake-up call to energy producers, particularly solar energy suppliers, to sell any excess energy they generate. 

That way, miners and other investors can greatly reduce the release of toxic substances and save the environment from pollution.

  • Proof of Stake

Cryptocurrencies under the PoS mechanism operate differently than PoW since they do not deploy any labor-intensive equipment to validate transactions. Instead, participants in the blockchain network stake a certain amount of digital coins to be eligible validators. That aspect makes PoS cryptos a safe alternative towards a greener future. 

On top of that, the mechanism also removes the need for solving complex algorithms, which can cost users hefty electrical bills and massive release of carbon to the atmosphere. For example, Ethereum, the second-largest crypto by market cap, recently began its migration from a PoW to a PoS ecosystem. Upon transition, Ethereum stated that it would reduce carbon emission rates by 99.5%. Algorand Blockchain is another perfect example of a PoS blockchain developed for the future of finance. 

In April 2021, Algorand disclosed that its network runs as the greenest, carbon-neutral blockchain solution in the market. By leveraging PoS-based cryptos and ecosystems, users experience environmentally cautious blockchains, which are much cheaper than PoW digital currencies.

Final Word

Greener alternatives in a financial system can promote an overall improvement in the global environment. By carefully regulating the number of carbon emissions, the financial system will thrive in a conducive environment and promote cost-effective financial services. 

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Moreover, the global environment will be free from pollution, illnesses, and global warming, mainly avoiding eco-friendly options. While it is everyone’s duty to protect the environment, adopting a greener path will require a great collaborative effort from citizens, the monetary system, and the government.

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