How can a virtual currency that exists in computer hard drives, manifest heated discussion and poses a real-world threat to the environment? The brief answer is Bitcoin mining. Since its foundation in 2009 by a mysterious group led by Satoshi Nakamoto, Bitcoin has offered roughly 410 million transactions between millions of accounts. As of today, the daily average transactions are approximately 386,000 Bitcoins ($193,000,000). However, current research shows that there is a gradual decline in Bitcoin mining since 2017. In the year 2017, Bitcoin (BTC) achieved an unparalleled price growth by burgeoning as much as 2000%, although the exchange rate has shown extensive variations. The probability of producing a digital resource with a massive price gives rise to an impetus to ‘mine’. Virtual currencies revolutionize our vision about market design and explain how the business of buyers and sellers operate. Companies with thousands of computers have developed an exclusive desire to solve mathematical questions in quest of direct private benefit. The Bitcoin protocol is a free, open software which grants users to exchange Bitcoins for alternative currencies or to sell or purchase goods.
For the first time, Bitcoin provides people with an alternative system of payment from a peer-to-peer network which is guaranteed safe and secure. But a question may arise that, are Bitcoin transactions secure? Well, they are secure comparatively to other smaller coins which are vulnerable. Bitcoins have gain high popularity during the past few years and, hence it is difficult to attack Bitcoin’s server. If a group or an organization can manage enough GPU’s, which costs Billions of dollars, then they can implement a 51% attack which increases the chances of mining Bitcoins. Ethereum was attacked a couple of months ago by an anonymous group of people who were able to gain 51% control over the server. All financial transactions are registered on a ledger which is a huge database of details and records. Banks and other financial institutions run on a centralized ledger and only one company controls it, what if someone hacks it? In contrast, a blockchain is a decentralized (i.e., a distributed ledger) system which is not governed by a single authority, making it much more tamper-proof. The ledger is imitated many times across several computers on a web.
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Bitcoin is a virtual currency with no connection to lawyers or regulators and, does not operate on a single computer server. The transactions are irrevocable, do not require a real name, and are done without the interference of central authority. Everybody knows that the transaction has taken place still no one can challenge the legitimacy of transfer. The security of the blockchain is provided by a computer-intensive algorithm known as a cryptographic hash, which is collision resistant and one-way. However, the mining of Bitcoin poses a high risk on the stability of the present economic systems, and the volatility of virtual currency raises questions.
Bitcoin grabs economists’ attention as a digital currency with the possibility to disturb existing payment methods like fiat or gold-based currencies and perhaps even financial systems. The sustainability of Bitcoins depends on certain factors such as financial, ethical, and economic aspects. Bitcoin mining is not possible without powerful hardware, which includes ASIC and FPGA. In late 2010, GPU and CPU were used to do computations, but they became obsolete because they did not have a functionality to carry out operations. All this requires plenty of hardware which needs constant updates and demands immense energy cost. According to scientific research, “the total energy consumption of Bitcoin mining is equivalent to the electricity developed by small or medium-sized countries such as Denmark, Ireland or Bangladesh”. Bitcoin mining can jeopardize our ecosystem as over the years it has used an exorbitant amount of energy. More energy corresponds to more carbon emissions, which eventually threatens our ecosystem. According to the Bitcoin Energy Consumption Index, “the estimated carbon footprint is 242Kg of CO2 per Bitcoin transactions”. Nevertheless, it is plausible to interpret that the electricity bill obtained by Bitcoin miners in hydroelectric-abundant Chinese provinces imitate the complexity and enable an opportunity to check pollution regulation guidelines in the market for mining virtual assets. As mining can produce a smooth flow of revenue, people all over the world are willing to run power-hungry machines to get a piece of it. However, many researchers contradict that Bitcoin mining consumes energy. For instance, according to Harald Vranken, who has done copious research in mining, states that “the energy consumption of the Bitcoin system is not excessive”.
Unlike many cryptocurrency guides, Seele and Dierksmeier argue that digital money is a controversial topic more than the merits and demerits of plastic money. While the denigrators claim that it is entirely a downright evil because it promotes criminal activities (e.g., drugs, weapons), uses offensive means for shadow banking and for the transactions within the ‘darknet’, and can easily escape public’s critical observation, the defenders contradict these claims by saying that it is the modern solution to the most pressing societal ailments like hyperinflation, poverty, and debt crisis. Both sides deliver a vivid picture; however, due to global dissemination and their digital nature, cryptocurrencies have the potential to be omnipresent than any other previously established forms of money. A big issue with Bitcoin mining is that the transactions are exceptionally slow because millions of people are trying to hash rate (i.e., find the block) at the same time from different parts of the world. The hash rate is unimaginably high which makes difficult to find the block. Another problem with Bitcoin is that, it requires a high transaction fee and, due to that people are dropping the idea of investing. Also, users require high technical knowledge and are supposed to know a lot about computer security, which is a reason for the downgrade of Bitcoin mining.
What is the ultimate goal of Bitcoin and other virtual cryptocurrencies? Will it replace VISA and Mastercard in future by escalating? The first perspective delivered a vivid picture, but as the modern constituents get the way, it turns out less comprehensible than the earlier design decisions meet necessity. However, said the technological issues with Bitcoin and the potential threats and ambiguities of the ‘dark web’ and vulnerability to digital theft, an adequate substitute has not yet arisen. In the long-run, the worldwide unity to restrict Bitcoin mining will not succeed to mark market failure due to ineffectiveness to control property rights and impose imperative institutional policies.
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