Modeling the Environmental and Regulatory Impacts of Cryptocurrency Mining: A System Dynamics Approach to Policy Evaluation

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Rahai Mohammad; Hosseinpoor Davood

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Journal Paper

Paper Information

Journal: AUT Journal of Modeling and Simulation Year:2024 | Volume:56 | Issue:2 Page(s): 219-234

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Title

Modeling the Environmental and Regulatory Impacts of Cryptocurrency Mining: A System Dynamics Approach to Policy Evaluation

Author(s)

Rahai Mohammad | Hosseinpoor Davood | Issue Writer Certificate

Keywords

Cryptocurrency Ecosystem

System Dynamics Modeling

Blockchain Technology

Regulatory Challenges

Abstract

This study examines the multifaceted challenges posed by Bitcoin’s rapid growth, focusing on economic, social, and regulatory issues, including illegal mining, high energy consumption, security vulnerabilities, and tax evasion. Through a System Dynamics (SD) modeling approach, the research explores the feedback loops and interactions within the Cryptocurrency Ecosystem. Key findings emphasize that strategic regulatory interventions are vital for balancing innovation with sustainability, mitigating environmental impacts, and ensuring power grid stability. The study underscores the role of evidence-based policymaking (EBPM) in formulating data-driven policies for the cryptocurrency sector. By integrating EBPM with SD modeling, the research provides actionable insights for policymakers to understand the broader implications of mining efficiency, network difficulty, and supply growth within the Bitcoin ecosystem. Four distinct scenarios were modeled to analyze varying outcomes influenced by technological advancements and miner participation. Scenario 1 depicts stable growth achieved through gradual increases in mining difficulty, resulting in limited yet sustainable expansion. Scenario 2 highlights the advantages of rapid technological adoption, driving short-term growth while raising concerns over energy consumption and market saturation. Scenario 3 focuses on long-term stability with a balanced growth strategy, ensuring sustainability but at the cost of slower expansion. Scenario 4 illustrates how rapid technological advancements can lead to increased mining activity, though accompanied by resource strain and diminishing returns. These findings stress the importance of adopting a balanced approach to managing Bitcoin mining. Policymakers, miners, and investors must align technological growth with sustainability to maintain the Bitcoin network’s long-term stability and profitability. Establishing a unified policymaking framework is critical for effective governance and coordination among stakeholders, including the Central Bank, Ministry of Energy, and Ministry of Industry. Additionally, public education campaigns on digital currencies and Blockchain Technology are imperative for fostering informed participation and mitigating misuse.

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