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What are the health impacts of cryptocurrencies?

Richard Armitage is a GP and Public Health Specialty Registrar, and Honorary Assistant Professor at the University of Nottingham’s Academic Unit of Population and Lifespan Sciences. He is on twitter: @drricharmitage

Whether it’s Bitcoins, altcoins, stablecoins or sh*tcoins, digital currencies, otherwise known as blockchain-enabled cryptocurrencies, have made unmissable impacts on the global economy. But what are they, how do they work and, most importantly for us, what are their effects on human health and wellbeing?

 

What are blockchains and cryptocurrencies?

Since the launch of bitcoin (BTC) in 2009 and ether (ETH) in 2015, the global cryptocurrency market has proliferated.  Over 20,000 cryptocurrencies were in circulation as of July 2022, each building upon the strengths and solving the weaknesses of the original bitcoin blockchain, or running on alternative versions of blockchain technology.1  Blockchains are decentralised public ledgers that identify all transactions using any particular cryptocurrency in a distributed peer-to-peer network of computers.  Individual, groups or even companies of miners competitively deploy brute force computing power to be the first to solve complex mathematical algorithms and, if successful, are rewarded with units of the relevant cryptocurrency.  Data regarding verified transactions are then added to the blockchain in batches (known as ‘blocks’) of transactions including the dates, times, quantities, participants (with unique anonymised digital signatures), and unique identifiers of each transaction.  Through this anonymous and decentralised process, cryptocurrencies are viewed by many as transformative technologies that circumvent traditional banking and governmental regulatory mechanisms inherent to centralized fiat currencies.2  In addition to the advent of cryptocurrencies, blockchain technology has allowed developers to create a rich and growing digital ecosystem that includes Web3 (apps and services built on top of cryptocurrency foundations), DeFi (a code-based, rather than contact-based, financial system), and non-fungible tokens (uniquely identifiable digital assets including art, games, music and films).

Within the last 24 months, the cryptocurrency market has undergone a staggering boom and bust cycle.

While cryptocurrency mining originally required only electricity, computer hardware (with spare CPU cycles), and an internet/network connection, opportunities for profitable mining increasingly requires specialised equipment concentrated in large-scale mining farms.  While alternatives exist (such as proof-of-stake, or PoS), most crypto applications use the proof-of-work (PoW) consensus protocol depended upon by bitcoin, in which the probability of successful mining is proportional to the computational power expended.  Accordingly, mining generates financial value, but consumes electricity in doing so.  Since the total supply of many crypto coins is algorithmically finite, and the mathematical parameters of PoW protocols require increased computational effort for the mining of each marginal coin, ever increasing amounts of electricity are required to increase the total coinage in circulation.3

Within the last 24 months, the cryptocurrency market has undergone a staggering boom and bust cycle.  While the global total cryptocurrency market cap was around $200 billion USD at the start of 2020, it increased by a factor of 15 within a 20-month period to reach its all-time peak of almost $3 trillion USD in November 2021, at which point the BTC price hit nearly $69,000 USD.  This boom was swiftly followed by an immense and potentially on-going bust which (so far) bottomed out at under $900 billion UDS total market cap in June 2022, with a BTC low dipping under $20,000 USD.4  This crash played out over the backdrop of wider market and macroeconomic problems, including the Ukraine conflict, rising inflation and soaring interest rates.  However, various other factors, including the collapse of the terra ‘stablecoin’ (a type of cryptocurrency intended to have a fixed value, typically $1 USD, designed as a safe storage of value and a facilitator of commerce), has for some heralded a wider downturn in the digital currency marketplace.5

Now that these technologies have been somewhat demystified, lets look at their impacts on human health and wellbeing?

Energy requirement, air pollution and carbon emissions

Due to the increased computational requirement for each marginal coin mined, the electricity consumption of cryptocurrency mining is substantial and rapidly growing.  For example, each BTC mined in January 2016 required 1,005 kWh of electricity, while each BTC mined in June 2018 required 60,461 kWh. The ∼1 million BTC mined in 2016 consumed 2.5 billion kWh of electricity, while the 700,00 BTC mined in 2018 consumed 47.9 billion kWh.2  Cryptocurrency asset operations, such as coin mining, collectively consume about 0.9-1.7% of total electricity usage in the US, which is similar to that of the country’s entire collection of home computers or residential lighting.6

Along with impairing the stability of local electricity grids,7 the negative social externalities (costs to society and other third parties not included in financial transactions) afforded by these energy consumptions are primarily the air pollution and climate emissions generated by fossil fuel combustion required to provide such power.  Global electricity generation for total cryptocurrency assets produces 0.3% of global annual greenhouse gas emissions, while 0.4-0.8% of total US greenhouse gas emissions derive from cryptocurrency asset activity, which is similar to total emissions from diesel fuel used on the country’s railway network.6

…nearly half of the financial value of each USD of bitcoin created (as represented by market prices) were represented by the subsequent impacts to human health and the climate.

‘Cryptodamages,’ which constitute the collective health and climate impacts of cryptocurrency mining secondary to largescale electricity consumption, are notoriously difficult to calculate to a reasonable degree of accuracy.  Nevertheless, these were calculated to amount to $0.49 USD of health and climate damages in the US, and $0.37 USD of health and climate damages in China, for every $1 of BTC mined in 2018.8  In other words, nearly half of the financial value of each USD of bitcoin created (as represented by market prices) were represented by the subsequent impacts to human health and the climate.

These profound energy expenses (and perhaps, but less likely, their substantial impacts on human health and our climate), are driving a move towards greener, more sustainable forms of cryptocurrency mining.  For example, market forces are incentivising miners to demand more efficient mining hardware and more efficient electricity-producing solutions, while global renewable energy penetration into cryptocurrency mining is already substantial and continues to grow rapidly.9  Meanwhile, Ethereum – the world’s second largest cryptocurrency by market cap – is due to convert from a PoW to a PoS protocol on 15 September 2022, which is expected to reduce its energy demands by up to 99%.10  Finally, while the climate impacts of cryptocurrencies are undeniably pronounced, they appear to be somewhat similar to those of corporate banking’s cash and investments (such as cash equivalents and marketable securities), which are generally not subjected to the same criticisms as crypto.11

Psychological and mental health impacts

…the constant anxiety surrounding these speculative tokens, along with cultural aspirations to ‘buy the * dip’ (BTFD) and ‘hold on for dear life’ (HODL), generate recognisable symptoms indicative of gambling addiction.

While the novelty, accessibility, and digital nature of cryptocurrency assets has attracted millions of new adopters, these individuals are disproportionately young, inexperienced and financially naïve investors attracted by the excitement of a new market and the fear of missing out.  However, the same constellation of factors, coupled with the almost violent volatility of cryptocurrency markets, which frequently fluctuate by ±10% each day,12 has seen large amounts of value, often described as entire life savings, being lost within a timescale of days or weeks.13  The mental health impacts of these unrecoverable losses are obvious and profound, while the constant anxiety surrounding these speculative tokens, along with cultural aspirations to ‘buy the * dip’ (BTFD) and ‘hold on for dear life’ (HODL), generate recognisable symptoms indicative of gambling addiction.14

 

Wider social impacts

Meanwhile, the libertarian, anti-establishment appeal of value creation through mining, which is independent of any government, regulatory entity, or specific geographic locality, can generate substantial social benefits including the secure storage of wealth and its free transfer across borders.  This includes overseas remittances to low- and middle-income countries, without the incursion of transaction fees due to the removal of third-party financial intermediaries, which have recognised positive impacts on global public health.15  A recent example of the liberating independence that these assets enable are the Ukrainian refugees who circumvented bank freezes and ATM overruns to escape Russian hostilities with their entire wealth converted from fiat to BTC, which could then be spent directly on necessities and healthcare.16

While the impacts to health and wellbeing of cryptocurrency markets are substantial and multifaceted, their magnitude, distribution, and overall sign (net-positive or net-negative) are profoundly uncertain when all factors (including the wealth that they generate) are considered.  Despite their volatility, however, what does appear clear is that they are unlikely to disappear soon, since the current British government plans to embrace crypto assets and digital currency markets, and make Britain a global hub for the growth of these technologies.17

References

  1. N Willing. How many cryptocurrencies are there? Guide to the crowded market. Capital.com 17 July 2022. https://capital.com/how-many-different-cryptocurrencies-are-there [accessed 13 September 2022]
  2. MJ Krause, and T Tolaymat. Quantification of energy and carbon costs for mining cryptocurrencies. Nature Sustainability 08 November 2018; 1: 711-718. DOI: 10.1038/s41893-018-0152-7
  3. J Ma, JS Gans, and R Tourky. Market Structure in Bitcoin Mining. National Bureau of Economic Research January 2018; Working paper 24242. DOI: 10.3386/w24242
  4. Coin Market Cap. Global Cryptocurrency Charts. https://coinmarketcap.com/charts/ [accessed 13 September 2022]
  5. E Hern. Could terra fall prove to be Lehman Brothers moment for cryptocurrencies? The Guardian 11 May 2022. https://www.theguardian.com/technology/2022/may/11/terra-price-cryptocurrency-stablecoin [accessed 13 September 2022]
  6. The Whitehouse. FACT SHEET: Climate and Energy Implications of Crypto-Assets in the United States. 08 September 2022. https://www.whitehouse.gov/ostp/news-updates/2022/09/08/fact-sheet-climate
  7. A de Vries, U Gallersdörfer, L Klaaßen, et al. The true costs of digital currencies: Exploring impact beyond energy use. One Earth 18 June 2021; 4(6): 786-789. DOI: 10.1016/j.oneear.2021.05.009
  8. AL Goodkin, BA Jones, RP Berrens. Cryptodamages: Monetary value estimates of the air pollution and human health impacts of cryptocurrency mining. Energy Research and Social Science JANUARY 2022; 59(101281). DOI: 10.1016/j.erss.2019.101281
  9. P Sandner. The Green Bitcoin Theory: How are Bitcoin, Electricity Consumption and Green Energy Related? Philipp Sander Medium 22 January 2020. https://philippsandner.medium.com/the-green-bitcoin-theory-how-are-bitcoin-electricity-consumption-and-green-energy-related-b541b23424ab [accessed 13 September 2022]
  10. M Sparkes. Ethereum Merge: What will the radical update mean for cryptocurrency? 13 September 2022. https://www.newscientist.com/article/2335740-ethereum-merge-what-will-the-radical-update-mean-for-cryptocurrency/ [accessed 13 September 2022]
  11. R Mason. Bitcoin and banking’s differing energy narratives are a matter of perspective. Coin Telegraph 11 June 2022. https://cointelegraph.com/news/bitcoin-and-banking-s-differing-energy-narratives-are-a-matter-of-perspective [accessed 13 September 2022]
  12. J Wood. Putting Crypto Volatility in Context: What We Can Learn From the History of Bitcoin Crashes. Coindesk 18 July 2022. https://www.coindesk.com/learn/putting-crypto-volatility-in-context-what-we-can-learn-from-the-history-of-bitcoin-crashes/ [accessed 13 September 2022]
  13. R Sharma. ‘Crypto Ruined My Life’: The Mental Health Crisis Hitting Bitcoin Investors. Vice 16 February 2022. https://www.vice.com/en/article/akvn8z/crypto-bad-for-mental-health [accessed 13 September 2022]
  14. N Davies and S Ferris. Cryptocurrency and new financial instruments: unquantified public health harms. The Lancet Public Health 01 August 2022; 7(8): E655. DOI: 10.1016/S2468-2667(22)00173-6
  15. BM Till, AW Peters, S Afshar, et al. From blockchain technology to global health equity: can cryptocurrencies finance universal health coverage? BMJ Global Health 2017; 2: e000570. DOI: 10.1136/ bmjgh-2017-000570
  16. Shinobi. How Bitcoin allowed a Ukrainian refugee to escape war and start fighting back on his own terms. Bitcoin Magazine 26 February 2022. https://bitcoinmagazine.com/culture/bitcoin-enables-ukrainian-refugee-escape[accessed 13 September 2022]
  17. GOV.UK. Government sets out plan to make UK a global cryptoasset technology hub. 04 April 2022. https://www.gov.uk/government/news/government-sets-out-plan-to-make-uk-a-global-cryptoasset-technology-hub [accessed 13 September 2022]

Featured photo by Kanchanara on Unsplash

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