In recent years, cryptocurrencies have had a significant impact on the global economy. The creation and use of digital currencies has opened up new opportunities for individuals and businesses to conduct financial transactions without the need for an intermediary. However, there has also been growing concern about the environmental impact that cryptocurrencies and cryptocurrency mining in particular have. The evolution of cryptocurrencies in recent years, their economic and environmental impact, the special case of El Salvador, and possible solutions to the problem will be discussed in this report.

Since the creation of Bitcoin in 2009, the cryptocurrency market has grown rapidly. As of 2023, there are over 4,000 cryptocurrencies in circulation, with a total market capitalization of over $1.19 Trillion dollars. Cryptocurrencies have changed the way financial transactions are carried out around the world, eliminating the need for a middleman (banks and governments), and providing a decentralized and secure system. This has led to an increase in electronic commerce and has allowed people to transact all over the world without restrictions.

However, the creation of cryptocurrencies and the mining of cryptocurrencies have a significant environmental impact. Cryptocurrency mining requires a large amount of energy, as complex mathematical algorithms must be solved to create new coins. In many cases, this energy comes from non-renewable sources such as coal and natural gas, which increases greenhouse gas emissions and contributes to climate change. Additionally, cryptocurrency mining often takes place in countries with cheap energy, which can lead to the exploitation of natural resources and environmental degradation.

In 2021, the government of El Salvador passed a law that makes Bitcoin a legal tender in the country, being the first country in the world to do so. While this has been seen as a breakthrough for cryptocurrency adoption, it has also raised concerns about the environmental impact of cryptocurrency mining in the country. El Salvador already faces significant environmental challenges, such as deforestation and water pollution, and cryptocurrency mining could only exacerbate these problems. The Salvadoran government has underestimated the environmental impact on the country by stating that Bitcoin mining in El Salvador will be exclusively powered by geothermal energy (a renewable, CO2 emission-free source).

In addition, El Salvador is also developing a plan to construct a “Bitcoin City”, which aims to create a special economic zone that will use Bitcoin as its primary currency. It is supposed to be a hub for technology, innovation, and entrepreneurship that will attract investment and boost economic growth in the region. However, such “city” will require large amounts of land and natural resources to be completed, raising concerns about the feasibility of the project.

In order to minimize the environmental impact of cryptocurrencies and mining there are several possible solutions that can be considered. First, mining companies can adopt more energy-efficient technologies, such as solar or wind power. In addition, the use of more energy-efficient and less resource-intensive cryptocurrencies can be encouraged. Policies can also be established that incentivize the reduction of energy consumption in cryptocurrency mining, such as taxes on the use of non-renewable energy.

In conclusion, the environmental impact of cryptocurrencies is an issue that requires attention and action. While cryptocurrencies have revolutionized the way financial transactions are conducted and have had a significant impact on the global economy, their impact on the environment cannot be ignored or underestimated.