Assessing the short-term and long-term environmental impacts of the bitcoin industry based on Continuous Wavelet Transform and Wavelet Coherence: Implications for the evaluation of cryptocurrencies in the Islamic finance framework
Subject Areas : Environmental Economicsmahdi ghaemiasl 1 , sahel rajab 2
1 - Assistant Professor, Faculty of Economics, Kharazmi University, Tehran, Iran. *(Corresponding Author)
2 - Faculty of Economics, Kharazmi University, Tehran, Iran.
Keywords: Environment, Electricity, Cryptocurrencies, Hash rates, Bitcoin industry,
Abstract :
Background and Objective: The growing popularity of cryptocurrencies, especially bitcoin, has led miners to use the cheapest energy available through fossil fuels and to pay little attention to the release of pollutants and their destructive effects on the environment and future generations of humans. Therefore, the purpose of our research is to investigate the effects of cryptocurrency extraction on greenhouse gas emissions and, consequently, on the environment. Material and Methodology: In this study, the effects of bitcoin mining on greenhouse gas emissions and environmental pollution were investigated using the method of "continuous wavelet transform and wavelet coherence". To achieve this, data such as bitcoin hash rate (energy consumption due to bitcoin extraction), and emission of four greenhouse gases, namely; Methane (CH4), carbon dioxide (CO2), nitrogen dioxide (N2O), and sulfur hexafluoride (SF6) were used monthly from 2009 to 2020. Findings: Although from the point of view of bitcoin crypto industry miners in the short run, the results showed that its effects and destructive effects on the environment can be seen in the long term. Discussion and Conclusion: The cryptocurrencies industry is one of the main factors in the emission of pollutants and greenhouse gases, and most of their extraction has a positive and significant effect on the emission of environmental pollutants and their fluctuations, in the long term. With the help of this research, the index of the impact of cryptocurrencies on the environment, future generations and intergenerational justice can be considered as a criterion for approving or disapproving of this industry in the Islamic financial framework.
References:
Bakar, N. A., Rosbi, S., & Uzaki, K. (2017). Cryptocurrency Framework Diagnostics from Islamic Finance Perspective: A New Insight of Bitcoin System Transaction. International Journal of Management Science and Business Administration, 4(1), 19-28.
Küfeoğlu, S., & Özkuran, M. (2019). Bitcoin mining: A global review of energy and power demand. Energy Research & Social Science, 58, 101273.
Badea, L., & Mungiu-Pupӑzan, M. C. (2021). The Economic and Environmental Impact of Bitcoin. IEEE Access, 9, 48091-48104.
Nakamoto, S. (2019). Bitcoin: A peer-to-peer electronic cash system.
Gillaizeau, M., Jayasekera, R., Maaitah, A., Mishra, T., Parhi, M., & Volokitina, E. (2019). Giver and the receiver: Understanding spillover effects and predictive power in cross-market Bitcoin prices. International Review of Financial Analysis, 63, 86-104.
Dilek, Ş., & Furuncu, Y. (2019). Bitcoin mining and its environmental effects. Atatürk Üniversitesi İktisadi ve İdari Bilimler Dergisi, 33(1), 91-106.
Krause, M. J., & Tolaymat, T. (2018). Quantification of energy and carbon costs for mining cryptocurrencies. Nature Sustainability, 1(11), 711-718.
Fairley, P. (2017). Blockchain world-Feeding the blockchain beast if bitcoin ever does go mainstream, the electricity needed to sustain it will be enormous. IEEE Spectrum, 54(10), 36-59.
De Vries, A. (2018). Bitcoin's growing energy problem. Joule, 2(5), 801-805.
Gallersdörfer, U., Klaaßen, L., & Stoll, C. (2020). Energy consumption of cryptocurrencies beyond bitcoin. Joule, 4(9), 1843-1846.
Andoni, M., Robu, V., Flynn, D., Abram, S., Geach, D., Jenkins, D., . . . Peacock, A. (2019). Blockchain technology in the energy sector: A systematic review of challenges and opportunities. Renewable and Sustainable Energy Reviews, 100, 143-174. doi:https://doi.org/10.1016/j.rser.2018.10.014
Govender, L. (2019). Cryptocurrency mining using renewable energy. An eco-innovative business model.
De Vries, A. (2019). Renewable energy will not solve bitcoin’s sustainability problem. Joule, 3(4), 893-898.
Qin, S., Klaaßen, L., Gallersdörfer, U., Stoll, C., & Zhang, D. (2020). Bitcoin's future carbon footprint. arXiv preprint arXiv:2011.02612.
Paramati, S. R., Apergis, N., & Ummalla, M. (2018). Dynamics of renewable energy consumption and economic activities across the agriculture, industry, and service sectors: evidence in the perspective of sustainable development. Environmental Science and Pollution Research, 25(2), 1375-1387. doi:10.1007/s11356-017-0552-7
Sharif, A., Raza, S. A., Ozturk, I., & Afshan, S. (2019). The dynamic relationship of renewable and nonrenewable energy consumption with carbon emission: A global study with the application of heterogeneous panel estimations. Renewable Energy, 133, 685-691. doi:https://doi.org/10.1016/j.renene.2018.10.052
Greenberg, P., & Bugden, D. (2019). Energy consumption boomtowns in the United States: community responses to a cryptocurrency boom. Energy Research & Social Science, 50, 162-167.
Sikorski, J. J., Haughton, J., & Kraft, M. (2017). Blockchain technology in the chemical industry: Machine-to-machine electricity market. Applied energy, 195, 234-246. doi:https://doi.org/10.1016/j.apenergy.2017.03.039
Derousseau, R. (2019). The Everything Guide to Investing in Cryptocurrency: From Bitcoin to Ripple, the Safe and Secure Way to Buy, Trade, and Mine Digital Currencies: Simon and Schuster.
Yi, S., Xu, Z., & Wang, G.-J. (2018). Volatility connectedness in the cryptocurrency market: Is Bitcoin a dominant cryptocurrency? International Review of Financial Analysis, 60, 98-114.
Li, J., Li, N., Peng, J., Cui, H., & Wu, Z. (2019). Energy consumption of cryptocurrency mining: A study of electricity consumption in mining cryptocurrencies. Energy, 168, 160-168.
Leonhard, R. (2016). Developing renewable energy credits as cryptocurrency on ethereum's blockchain. Available at SSRN 2885335.
Shi, L., Wang, T., Li, J., & Zhang, S. (2021). Pooling is not Favorable: Decentralize Mining Power of PoW Blockchain Using Age-of-Work. arXiv preprint arXiv:2104.01918.
Symitsi, E., & Chalvatzis, K. J. (2018). Return, volatility and shock spillovers of Bitcoin with energy and technology companies. Economics Letters, 170, 127-130.
Narayanan, A., Bonneau, J., Felten, E., Miller, A., & Goldfeder, S. (2016). Bitcoin and cryptocurrency technologies: a comprehensive introduction: Princeton University Press.
Bhaskar, N. D., & Chuen, D. L. K. (2015). Bitcoin mining technology. In Handbook of digital currency (pp. 45-65): Elsevier.
Goutte, S., Guesmi, K., & Saadi, S. (2019). Cryptofinance and Mechanisms of Exchange: Springer.
Pathirana, A., Halgamuge, M., & Syed, A. (2019). Energy Efficient Bitcoin Mining to Maximize the Mining Profit: Using Data from 119 Bitcoin Mining Hardware Setups.
Hayes, A. S. (2017). Cryptocurrency value formation: An empirical study leading to a cost of production model for valuing bitcoin. Telematics and Informatics, 34(7), 1308-1321. doi:https://doi.org/10.1016/j.tele.2016.05.005
Ghosh, E., & Das, B. (2019). A study on the issue of blockchain’s energy consumption. Paper presented at the International Ethical Hacking Conference.
Belkhir, L., & Elmeligi, A. (2018). Assessing ICT global emissions footprint: Trends to 2040 & recommendations. Journal of cleaner production, 177, 448-463.
Edgell, S. T. (2021b). Toto, I've a Feeling the Environment Isn't Safe from Cryptocurrency Anymore: The Degrading Ecological Effects of Bitcoin and Digital Currencies. Envtl. LJ, 32, 69.
Edgell, S. T. (2021a). Toto, I've a Feeling the Environment Isn't Safe from Cryptocurrency Anymore: The Degrading Ecological Effects of Bitcoin and Digital Currencies. Villanova Environmental Law Journal, 32(1), 69.
Lee, J., & KIM, Y. (2015). An analysis of energy and hardware impacts on the bitcoin mining network. ACM Transactions on Economics and Computation, 5, 1-10.
Nair, R., Gupta, S., Soni, M., Shukla, P. K., & Dhiman, G. (2020). An approach to minimize the energy consumption during blockchain transaction. Materials Today: Proceedings.
An, J., Dorofeev, M., & Zhu, S. (2020). Development of energy cooperation between Russia and China. International Journal of Energy Economics and Policy, 10(1), 134.
Huynh, A. N. Q., Duong, D., Burggraf, T., Luong, H. T. T., & Bui, N. H. (2021). Energy Consumption and Bitcoin Market. Asia-Pacific Financial Markets. doi:10.1007/s10690-021-09338-4.
de Vries, A. (2021). Bitcoin boom: What rising prices mean for the network’s energy consumption. Joule, 5(3), 509-513.
Näf, M., Keller, T., & Seiler, R. (2021). Proposal of a methodology for the sustainability assessment of cryptocurrencies. Paper presented at the 54th Hawaii International Conference on System Sciences, Grand Wailea, Hawaii, USA, 5-8 January 2021.
Arain, H., Sharif, A., Akbar, B., & Younis, M. Y. (2020). Dynamic connection between inward foreign direct investment, renewable energy, economic growth and carbon emission in China: evidence from partial and multiple wavelet coherence. Environmental Science and Pollution Research, 27(32), 40456-40474.
Fabrico, Filipo; The bitcoin and blockchain: energy hogs. 17 May 2017. (In English)
Poorahmad, Ahmad, Heidari, Roghayeh. (2016). Investigation of Environmental Pollution in the Countries of the Islamic World, Quarterly Journal of Political Research of the Islamic World, Year 6, Issue 1, Spring 2016, pp. 143-170.
Rahm Bazi, Khodar (2010). A reflection on the environment and its sustainability in the Islamic world; Proceedings of the Fourth International Congress of Geographers of the Islamic World, April 2010.
Najafi, Zina al-Abedin, Najafi, Zohreh. (2020). Conflict between the right to the human environment and the right to development from the perspective of Sharia; Bi-Quarterly Journal of Human-Religious Research, Year 7, No. 43, Spring and Summer 2016, pp. 47-25.
Ismaili, Abbas, Rezaian, Mohsen, Vazirinejad, Reza, Tabatabai, Seyed Zia, Salem, Zinat and Mahdavian, Fereshteh. (2007). Environmental protection in Islam; Special issue of the first health conference on the teachings of the Holy Prophet; Journal of Rafsanjan University of Medical Sciences; Volume 6, Winter 2007, pp. 55-60. (In Persian).
Dilek, Ş., & Furuncu, Y. (2019). Bitcoin mining and its environmental effects. Atatürk Üniversitesi İktisadi ve İdari Bilimler Dergisi, 33(1), 91-106. Mohsin, K. (2021). Cryptocurrency & Its Impact on Environment. Available at SSRN 3846774.
Bakar, N. A., Rosbi, S., & Uzaki, K. (2017). Cryptocurrency Framework Diagnostics from Islamic Finance Perspective: A New Insight of Bitcoin System Transaction. International Journal of Management Science and Business Administration, 4(1), 19-28.
Küfeoğlu, S., & Özkuran, M. (2019). Bitcoin mining: A global review of energy and power demand. Energy Research & Social Science, 58, 101273.
Badea, L., & Mungiu-Pupӑzan, M. C. (2021). The Economic and Environmental Impact of Bitcoin. IEEE Access, 9, 48091-48104.
Nakamoto, S. (2019). Bitcoin: A peer-to-peer electronic cash system.
Gillaizeau, M., Jayasekera, R., Maaitah, A., Mishra, T., Parhi, M., & Volokitina, E. (2019). Giver and the receiver: Understanding spillover effects and predictive power in cross-market Bitcoin prices. International Review of Financial Analysis, 63, 86-104.
Dilek, Ş., & Furuncu, Y. (2019). Bitcoin mining and its environmental effects. Atatürk Üniversitesi İktisadi ve İdari Bilimler Dergisi, 33(1), 91-106.
Krause, M. J., & Tolaymat, T. (2018). Quantification of energy and carbon costs for mining cryptocurrencies. Nature Sustainability, 1(11), 711-718.
Fairley, P. (2017). Blockchain world-Feeding the blockchain beast if bitcoin ever does go mainstream, the electricity needed to sustain it will be enormous. IEEE Spectrum, 54(10), 36-59.
De Vries, A. (2018). Bitcoin's growing energy problem. Joule, 2(5), 801-805.
Gallersdörfer, U., Klaaßen, L., & Stoll, C. (2020). Energy consumption of cryptocurrencies beyond bitcoin. Joule, 4(9), 1843-1846.
Andoni, M., Robu, V., Flynn, D., Abram, S., Geach, D., Jenkins, D., . . . Peacock, A. (2019). Blockchain technology in the energy sector: A systematic review of challenges and opportunities. Renewable and Sustainable Energy Reviews, 100, 143-174. doi:https://doi.org/10.1016/j.rser.2018.10.014
Govender, L. (2019). Cryptocurrency mining using renewable energy. An eco-innovative business model.
De Vries, A. (2019). Renewable energy will not solve bitcoin’s sustainability problem. Joule, 3(4), 893-898.
Qin, S., Klaaßen, L., Gallersdörfer, U., Stoll, C., & Zhang, D. (2020). Bitcoin's future carbon footprint. arXiv preprint arXiv:2011.02612.
Paramati, S. R., Apergis, N., & Ummalla, M. (2018). Dynamics of renewable energy consumption and economic activities across the agriculture, industry, and service sectors: evidence in the perspective of sustainable development. Environmental Science and Pollution Research, 25(2), 1375-1387. doi:10.1007/s11356-017-0552-7
Sharif, A., Raza, S. A., Ozturk, I., & Afshan, S. (2019). The dynamic relationship of renewable and nonrenewable energy consumption with carbon emission: A global study with the application of heterogeneous panel estimations. Renewable Energy, 133, 685-691. doi:https://doi.org/10.1016/j.renene.2018.10.052
Greenberg, P., & Bugden, D. (2019). Energy consumption boomtowns in the United States: community responses to a cryptocurrency boom. Energy Research & Social Science, 50, 162-167.
Sikorski, J. J., Haughton, J., & Kraft, M. (2017). Blockchain technology in the chemical industry: Machine-to-machine electricity market. Applied energy, 195, 234-246. doi:https://doi.org/10.1016/j.apenergy.2017.03.039
Derousseau, R. (2019). The Everything Guide to Investing in Cryptocurrency: From Bitcoin to Ripple, the Safe and Secure Way to Buy, Trade, and Mine Digital Currencies: Simon and Schuster.
Yi, S., Xu, Z., & Wang, G.-J. (2018). Volatility connectedness in the cryptocurrency market: Is Bitcoin a dominant cryptocurrency? International Review of Financial Analysis, 60, 98-114.
Li, J., Li, N., Peng, J., Cui, H., & Wu, Z. (2019). Energy consumption of cryptocurrency mining: A study of electricity consumption in mining cryptocurrencies. Energy, 168, 160-168.
Leonhard, R. (2016). Developing renewable energy credits as cryptocurrency on ethereum's blockchain. Available at SSRN 2885335.
Shi, L., Wang, T., Li, J., & Zhang, S. (2021). Pooling is not Favorable: Decentralize Mining Power of PoW Blockchain Using Age-of-Work. arXiv preprint arXiv:2104.01918.
Symitsi, E., & Chalvatzis, K. J. (2018). Return, volatility and shock spillovers of Bitcoin with energy and technology companies. Economics Letters, 170, 127-130.
Narayanan, A., Bonneau, J., Felten, E., Miller, A., & Goldfeder, S. (2016). Bitcoin and cryptocurrency technologies: a comprehensive introduction: Princeton University Press.
Bhaskar, N. D., & Chuen, D. L. K. (2015). Bitcoin mining technology. In Handbook of digital currency (pp. 45-65): Elsevier.
Goutte, S., Guesmi, K., & Saadi, S. (2019). Cryptofinance and Mechanisms of Exchange: Springer.
Pathirana, A., Halgamuge, M., & Syed, A. (2019). Energy Efficient Bitcoin Mining to Maximize the Mining Profit: Using Data from 119 Bitcoin Mining Hardware Setups.
Hayes, A. S. (2017). Cryptocurrency value formation: An empirical study leading to a cost of production model for valuing bitcoin. Telematics and Informatics, 34(7), 1308-1321. doi:https://doi.org/10.1016/j.tele.2016.05.005
Ghosh, E., & Das, B. (2019). A study on the issue of blockchain’s energy consumption. Paper presented at the International Ethical Hacking Conference.
Belkhir, L., & Elmeligi, A. (2018). Assessing ICT global emissions footprint: Trends to 2040 & recommendations. Journal of cleaner production, 177, 448-463.
Edgell, S. T. (2021b). Toto, I've a Feeling the Environment Isn't Safe from Cryptocurrency Anymore: The Degrading Ecological Effects of Bitcoin and Digital Currencies. Envtl. LJ, 32, 69.
Edgell, S. T. (2021a). Toto, I've a Feeling the Environment Isn't Safe from Cryptocurrency Anymore: The Degrading Ecological Effects of Bitcoin and Digital Currencies. Villanova Environmental Law Journal, 32(1), 69.
Lee, J., & KIM, Y. (2015). An analysis of energy and hardware impacts on the bitcoin mining network. ACM Transactions on Economics and Computation, 5, 1-10.
Nair, R., Gupta, S., Soni, M., Shukla, P. K., & Dhiman, G. (2020). An approach to minimize the energy consumption during blockchain transaction. Materials Today: Proceedings.
An, J., Dorofeev, M., & Zhu, S. (2020). Development of energy cooperation between Russia and China. International Journal of Energy Economics and Policy, 10(1), 134.
Huynh, A. N. Q., Duong, D., Burggraf, T., Luong, H. T. T., & Bui, N. H. (2021). Energy Consumption and Bitcoin Market. Asia-Pacific Financial Markets. doi:10.1007/s10690-021-09338-4.
de Vries, A. (2021). Bitcoin boom: What rising prices mean for the network’s energy consumption. Joule, 5(3), 509-513.
Näf, M., Keller, T., & Seiler, R. (2021). Proposal of a methodology for the sustainability assessment of cryptocurrencies. Paper presented at the 54th Hawaii International Conference on System Sciences, Grand Wailea, Hawaii, USA, 5-8 January 2021.
Arain, H., Sharif, A., Akbar, B., & Younis, M. Y. (2020). Dynamic connection between inward foreign direct investment, renewable energy, economic growth and carbon emission in China: evidence from partial and multiple wavelet coherence. Environmental Science and Pollution Research, 27(32), 40456-40474.
Fabrico, Filipo; The bitcoin and blockchain: energy hogs. 17 May 2017. (In English)
Poorahmad, Ahmad, Heidari, Roghayeh. (2016). Investigation of Environmental Pollution in the Countries of the Islamic World, Quarterly Journal of Political Research of the Islamic World, Year 6, Issue 1, Spring 2016, pp. 143-170.
Rahm Bazi, Khodar (2010). A reflection on the environment and its sustainability in the Islamic world; Proceedings of the Fourth International Congress of Geographers of the Islamic World, April 2010.
Najafi, Zina al-Abedin, Najafi, Zohreh. (2020). Conflict between the right to the human environment and the right to development from the perspective of Sharia; Bi-Quarterly Journal of Human-Religious Research, Year 7, No. 43, Spring and Summer 2016, pp. 47-25.
Ismaili, Abbas, Rezaian, Mohsen, Vazirinejad, Reza, Tabatabai, Seyed Zia, Salem, Zinat and Mahdavian, Fereshteh. (2007). Environmental protection in Islam; Special issue of the first health conference on the teachings of the Holy Prophet; Journal of Rafsanjan University of Medical Sciences; Volume 6, Winter 2007, pp. 55-60. (In Persian).
Dilek, Ş., & Furuncu, Y. (2019). Bitcoin mining and its environmental effects. Atatürk Üniversitesi İktisadi ve İdari Bilimler Dergisi, 33(1), 91-106. Mohsin, K. (2021). Cryptocurrency & Its Impact on Environment. Available at SSRN 3846774.
_||_
