CA wants to embrace cryptocurrency. There’s one big problem.

Good morning, and welcome to the Essential California newsletter. It’s Tuesday, May 10. I’m Justin Ray.

Gov. Gavin Newsom has signed an executive order for cryptocurrency that is meant to help facilitate its growth in the state. But it includes little about a major downside of the industry: its environmental impact.

The executive order, which you can read here, spends a lot of time discussing the need to be proactive to prevent “unintended social consequences of new technologies” and uneven opportunities across communities. It also explains how the state has laid groundwork to help regulate cryptocurrency to “create a transparent and consistent business environment for companies operating in blockchain.”

The environmental impact of cryptocurrency comes up twice in the order: once when discussing the need to form a “business environment” that “incorporates California values, such as equity, inclusivity, and environmental protection,” and once when discussing the need to consider input from stakeholders who may be “concerned about potential negative externalities, including energy consumption and environmental impact.”

Simply put: The executive order doesn’t put a lot of energy into energy. Here’s why that’s a problem.

What is the harm from bitcoins?

To understand why bitcoin and other cryptocurrencies are harmful to the environment, I have to give you a basic understanding of how they work, and the process at the center of it all: proof of work.

First, cryptocurrency has what is called a distributed ledger. That means there isn’t just one person who is responsible for updating a record of transactions; Many people in a network have their own records.

Now, this system has to address the issue of double-spending: When you go to a store and buy a beer with $20, you no longer have that $20. But if you have a cryptocurrency, you could conceivably pay two people with that same $20. To eliminate this, transactions have to be verified. (A group of these verified transactions are put into a block. These transactions build off of previous ones, which are in previous blocks. Altogether, these create blockchains.)

But how are these blocks verified? That’s where miners come in. With their computers, they race to solve a complex math puzzle that verifies and approves the transactions. Whoever solves it first is rewarded with bitcoins. This process is proof of work.

The reason bitcoin needs so much energy is because many, many, many, many, many machines are trying to solve the puzzle.

The energy consumption

As the Associated Press has reported, determining exactly how much energy the industry consumes is difficult as not all miners report their usage. However, the Cambridge Bitcoin Electricity Consumption Index estimates that in the past year, bitcoin mining used about what the state of Virginia used in 2020. The New York Times reported that bitcoin consumers seven times more electricity than all of Google (you read that right). NYT also reported that usage “has increased about tenfold in just the past five years.”

There’s more. One bitcoin transaction uses the same amount of power that the average American household uses in a month, according to Digiconomist, a site that models the environmental sustainability of cryptocurrencies. The site also reports that a single transaction is responsible for about a million times more carbon emissions than one Visa transaction.

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