At the corner of Park Avenue and 52nd Street in New York, onlookers recently stopped in front of a giant green skull sitting on the bed of a truck parked outside the office of Fidelity Investments, the global financial management company.
“Satoshi’s Skull,” named after the pseudonymous bitcoin developer Satoshi Nakamoto, is made up almost entirely of computer circuit boards and fitted with tall chimneys usually found on top of coal-fired power plants.
The artifact is a project by artist Benjamin Von Wong and is a reference to the massive amounts of carbon emitted by mining the cryptocurrency bitcoin, an effort Fidelity is now undertaking.
Bitcoin is primarily known as a wild investment vehicle that, along with many other cryptocurrencies, can seemingly make or lose fortunes overnight in a market where values rise and fall rapidly and by wide margins.
But what concerns environmentalists and others is the enormous amount of electricity used to generate bitcoin and other similar currencies, energy that is often traced back to fossil fuels and therefore has a corresponding impact on the climate crisis.
As major financial brands speculate in the world of cryptocurrencies, environmental activists want to make sure they know they’re not just making a financial bet; there is also an environmental risk.
Some hope they can persuade those institutions to try to lessen the impact of crypto mining. “It is a big step for a financial institution like Fidelity to launch its own crypto platform. So now more than ever we need your help,” said Rolf Skar, campaign manager for Greenpeace USA, a nonprofit environmental advocacy organization.
It is a complex situation. But here is a guide to the key issues.
What is Bitcoin?
Bitcoin is a type of cryptocurrency, a form of decentralized currency that is strictly digital rather than physical, unlike dollars, pounds, or euros. It is managed and traded on an open, public ledger known as a “blockchain” that records all bitcoin transactions. Although not commonly done, bitcoin can be used to purchase material goods.
How does bitcoin cause environmental damage?
Because cryptocurrencies like bitcoin are not centralized, there is no single authority or body to verify transactions. Instead, participants in the bitcoin network “mine” or compete to solve cryptographic puzzles to generate more currency. Whoever solves the puzzle the fastest can verify the transactions for a chance to add the newest batch to the blockchain.
The winner is financially rewarded with a new cryptocurrency in this process, known as “proof of work” (Pow), the culprit behind greenhouse gas emissions.
The Pow consensus algorithm used to verify transactions requires vast amounts of electricity that is often produced by burning fossil fuels, emitting carbon dioxide and other planet-warming greenhouse gases.
A 2022 report, titled Revisiting Bitcoin’s Carbon Footprint, by climate and economic researchers from across Europe, estimates that “Bitcoin mining may be responsible for 65.4 megatonnes of CO2 per year…which is comparable to country level emissions in Greece (56.6 megatonnes in 2019).”
What do environmental groups want?
There is a recent push by some environmentalists to reduce the environmental impact of bitcoin by changing the way it is produced.
So groups like Greenpeace are calling out Fidelity and other financial management and payment processing companies that have ventured into bitcoin mining. Hence the recent attack on Fidelity. Skar said that although Fidelity responded to Greenpeace when the group reached out, the response was lackluster.
“[Fidelity] He doesn’t seem to want to talk about it. they refused [our request to speak] so far, but it is an invitation for them and others to step up and put resources into solutions to address the global bitcoin mining problem. We believe it can be done,” Skar said.
How might ‘change the code’ mitigate environmental damage?
The solution, Greenpeace argues, is simple: change the computer code that produces bitcoin to consume less electricity and reduce its carbon footprint.
This code is open source, which means it is publicly accessible to anyone who wants to see or use it.
Instead of a Pow verification process, which requires large amounts of energy, climate activists advocate for a verification process that consumes less energy and does not depend on speed, such as “proof of stake” (Pos), used for ethereum, another cryptocurrency
How is this Fidelity problem?
Since Bitcoin is decentralized, it has no owner and no one to hold accountable for the problems the cryptocurrency creates, such as wreaking havoc on the environment.
Activists advocating a code switch to bitcoin argue that popular financial services corporations like Fidelity have the clout to incentivize such a switch, which would be environmentally transformative.
“[Fidelity] it does not have a climate commitment like other asset managers. Fidelity is the focus because they have been one of the largest traditional financial players involved in the bitcoin space and they refuse to acknowledge that they have the responsibility and ability to help fix the problem that bitcoin mining is having in the climate. So this is actually an invitation for them,” Skar said.
He called the code change “a win for bitcoin and for the climate and for communities.”
But would it be successful?
Prominent voices in the bitcoin community and some scholars on the subject do not accept this solution.
Dr. Hanna Halaburda is an Associate Professor of Technology, Operations, and Statistics at New York University’s Stern School of Business. Among the classes she teaches are Blockchain and Cryptocurrency and Fintech Fundamentals.
Referring to a hypothetical bitcoin protocol change, Halaburda said: “I don’t think it’s going to work. everyone recognizes [bitcoin] It’s not healthy for the environment, but any major changes to the bitcoin protocol have not been successful because all miners need to agree to that.”
Any miners who do not agree with the protocol change can simply reject the new code and continue running the original code that is based on the power-hungry Pow.
Would other tactics work?
Halaburda said there might be another solution: renewable energy.
“A lot [bitcoin] mining companies have established their contracts with renewable energy companies. The argument is that having these mining facilities as customers means that when there is an oversupply of power, it can actually make it more profitable for renewable power plants,” he said.
This means that these energy companies can mine bitcoins during periods of excess production and excess supply. So instead of letting energy go to waste, money can be made and wealth shared between cryptocurrency mining facilities and the renewable energy companies they contract with.
Fidelity did not respond to The Guardian’s request for comment.