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Is Digital Currency More Sustainable Than Paper Currency?

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In a world increasingly conscious of its environmental footprint, the debate around the sustainability of digital currency compared to traditional paper currency is more relevant than ever. We delve into the environmental impact of both forms of currency, focusing on their carbon and water footprints. Together with Prof. Joshua Ellul, we explore the often-discussed environmental effects of cryptocurrency mining and compare those to the emissions associated with paper money.

In order to get a better grasp on this topic, we spoke to Prof. Joshua Ellul, Associate Professor of Computer Science at the Faculty of ICT and Director of the Centre for DLT at UM. He emphasised that almost every product or service, be it a cotton t-shirt or a digital currency platform, carries a carbon and water footprint. The critical consideration lies in balancing the utility derived against the environmental cost incurred. 

‘Almost everything has an impact on resource use and a potential impact on the environment. We need to focus on the right balance between products, services, and quality of life in a manner that does not negatively impact the environment or society at large. The debate is heavily nuanced and cannot be considered from a single perspective,’ Ellul explains.

For example, while the production of a single cotton T-shirt requires about 3,000 litres of water, the decision to cease its use must consider its utility and possible alternatives. This principle extends to various sectors including entertainment, where films like Monsters, Inc. consume significant energy in rendering, and banking systems both physical and digital, which have higher environmental costs than one might initially assume. 

Even entertainment sector has an impact on the environment. Films, such as Monsters Inc., consume large amounts of power for rendering. Editorial credit: chingyunsong / Shutterstock.com

In the realm of currency, Ellul advocates for the continued use of physical cash, underscoring its importance for reasons like backup during technology failures and preservation of privacy rights, despite its environmental implications. Physical cash gives citizens full control of their savings and spendings with complete privacy (subject to regulatory limits). ‘This is a right we should not give up – at least until we’re convinced that any indirect negative impacts are outweighed by these benefits,’ he says.

In the context of cryptocurrencies, he highlights Bitcoin’s energy-intensive proof-of-work system, suggesting that its utility in potentially replacing some aspects of the current financial system be weighed against its environmental footprint. That being said, Ellul mentions that there are newer cryptocurrencies utilising proof-of-stake protocols that have significantly lower energy consumption, presenting a more sustainable alternative. This discussion underscores the need for a thoughtful evaluation of the environmental impacts of technology and products in relation to their benefits.

Environmental Sustainability: A Closer Look

The production and maintenance of physical currencies, such as coins and paper money, have a tangible environmental impact. This includes deforestation for paper, mining of metals for coins, energy used in the manufacturing process, and emissions from transporting currency around the world. Additionally, the lifespan of paper money is relatively short, necessitating frequent reprinting, which further compounds its environmental footprint.

While centralised digital banking systems do not require the physical resources of cash, they still have an environmental impact. The servers and data centres that power these digital transactions consume substantial energy. Moreover, the production and disposal of electronic equipment used in these banking systems, like computers and servers, also contribute to their environmental footprint. Ellul further highlights that there are indirect environmental impacts including but not limited to those related to the commuting of staff.

In contrast, cryptocurrencies like Bitcoin are digital. Thus, they do not require physical materials for their creation and require less manual operation/intervention (aside from ensuring that the computational infrastructure continues to run). However, their environmental impact is largely tied to the energy-intensive process of mining. Mining involves extensive numbers of computers and specific computational devices solving complex mathematical problems, consuming significant amounts of electricity, often sourced from fossil fuels. The carbon footprint of this energy use is a major concern, though efforts are being made by some Bitcoin miners towards renewable energy sources – incentivised through profit maximisation.

Mining involves extensive numbers of computers and specific computational devices solving complex mathematical problems, consuming significant amounts of electricity, often sourced from fossil fuels.

Unexpected Benefits of Digital Currency

In the ongoing debate between digital and paper currencies, an often-overlooked aspect is the unexpected benefits of digital currencies, particularly in terms of scalability, environmental impact, and innovative energy use. Unlike paper currency, which necessitates ongoing production, transport, and disposal, digital currencies offer almost limitless scalability with minimal physical impact. This difference is crucial in considering the environmental sustainability of each currency type.

Going back to Bitcoin mining, which is typically criticised for its high energy consumption, there are avenues for innovative energy efficiency and resource optimisation. The significant heat generated during Bitcoin mining could be repurposed for other needs, such as heating buildings. This concept of using the byproduct of one process to fulfil another need is not only an example of circular economy principles but also represents a form of energy efficiency that could mitigate some of the environmental concerns associated with digital currencies.

By harnessing the heat produced from Bitcoin mining, we could potentially offset a portion of its environmental footprint. This approach suggests a shift from viewing digital currency mining as a purely energy-consuming activity to one that could contribute to energy solutions. Such innovations point towards a future where digital currencies not only serve as financial tools but also play a role in sustainable energy management. This perspective adds a significant dimension to the debate on the sustainability of digital versus paper currencies, highlighting the potential for digital currencies to evolve in ways that could reduce their environmental impact.

The question of whether digital currency is more sustainable than paper currency brings forth a complex web of environmental, technological, and societal factors. Our exploration, enriched by insights from Prof. Joshua Ellul, indicates that the answer is not straightforward but nuanced, dependent on various evolving factors.

Both digital and paper currencies carry inherent environmental impacts. Paper currency, with its requirements for physical production and transportation, presents clear ecological challenges. Digital currencies, while eliminating these physical demands, introduce their own environmental concerns, notably in energy-intensive processes like cryptocurrency mining. Yet digital currencies also offer innovative pathways to sustainability, such as the potential repurposing of heat from Bitcoin mining for heating buildings, demonstrating a move towards energy efficiency and resource optimisation.

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