What Is the Environmental Impact of Cryptocurrency?
As the world grapples with how best to combat climate change, we’ve identified fossil fuels, farming, and industrial pollution as major offenders, but in recent years, the discussion has turned to cryptocurrency. Mining, particularly Bitcoin mining, uses an immense amount of energy, while the race among would-be crypto millionaires to build the most powerful mining rig produces a lot more electronic waste than fat bank accounts.
How much does cryptocurrency cost the environment? Does mining and transacting with crypto actually contribute to climate change? Here’s what we know so far.
How Much Energy Is Too Much Energy?
The most obvious environmental impact of crypto is the electricity required for the mining process, which is how new digital coins are created. While most know this as Bitcoin mining, many forms of cryptocurrency rely on mining. But since Bitcoin’s release, it’s become progressively harder to mint new units of currency through mining. This was by design, as the currency was capped at 21 million units, so the more units minted, the fewer units there are available to mine, and the more computational power it takes to mint new ones.
That preprogrammed scarcity combined with the potential for financial gain (one Bitcoin is worth about $42,000 as of this writing, and the current reward for mining a new block is 6.25 Bitcoin) means more people are using more electricity to mine what’s left. The Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin mining uses more power globally per year than some countries, including the Netherlands and Pakistan.
The environmental concern comes from the estimated carbon footprint generated by the power plants providing that energy. And it isn’t just mining that uses lots of power—a single Bitcoin transaction is estimated to burn 2,292.5 kilowatt hours of electricity, enough to power a typical US household for over 78 days.
Electricity may seem like a clean source of energy, but many countries burn fossil fuels to generate it, which adds to the carbon in the atmosphere and worsens climate change. The US is estimated to be home to around 35% of Bitcoin mining operations, according to the University of Cambridge, and generates 60% of its electricity through fossil fuels.
There’s also the issue of physical electronic waste. Computers, graphics cards, purpose-built ASIC rigs, and more are used for mining. Since increased computing power translates to an advantage in the race to mine more coins, people are constantly upgrading and throwing away old equipment, producing up to 30,000 tons of electronic waste every year.
Why Does Crypto Use So Much Energy?
Digital currencies were made to be difficult to mine and take a lot of computing power to generate so no one person or group could take control of the entire network. This feature is part of what makes cryptocurrencies decentralized, meaning they have no single point of control.
Popular cryptocurrencies like Bitcoin and Ethereum operate on what’s called a proof of work (PoW) system, which relies on people having to solve equations of varying difficulty to mine new coins and add new blocks of information to a digital currency’s blockchain. This system was developed, in part, to counteract cyberattacks where one person creates a host of fake identities and uses them to take over a majority of the network.
Because everyone on the network is fighting to be the first to solve these equations and get the monetary reward, the person with the most processing power has the best chance to win. That leads people to put together larger mining rigs (or even networks of mining rigs) that grind through equations faster. Since the amount of energy used is reliant on the size of the mining network, ever increasing amounts of energy are needed to mine new coins.
The price and availability of electricity can also affect the volume of cryptocurrency mining operations. If electricity is cheaper in one country (or even part of a country) than another, it makes sense from a business standpoint to centralize mining operations there.
One important point to note in the discussion around cryptocurrency’s environmental impact is that the amount of energy it uses might not directly equate to carbon emissions. According to the Harvard Business Review, the energy mix—or what sources miners are drawing from—will affect the actual carbon emissions of cryptocurrency mining.
In the US, about 60% of the grid’s energy comes from fossil fuels like natural gas, coal, and petroleum. So while it’s safe to say that US-based mining operations are using fossil fuels for the majority of their power, that may not be the case for operations based in other countries. Given the vast amount of energy usage by just Bitcoin, though, it seems like splitting hairs to say it isn’t contributing to greenhouse gases in some way.
The power plants necessary for crypto mining can also have an impact on the surrounding ecosystem. According to Columbia Climate School, the Greenidge Generation plant in Dresden, New York, draws millions of gallons of water to cool itself while running, and discharges some of that water back into Lake Seneca at 30-50 degrees Fahrenheit above normal temperature, which endangers the wildlife.
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Can We Reduce Crypto’s Environmental Impact?
Efforts to make crypto more green include using methane gas from fossil fuel drilling that usually gets burned off, and setting up plants in areas where wind power is abundant, like West Texas. These are good ideas in theory, but if the price of Bitcoin were to crash, it may not be financially feasible to implement these projects or others like them.
Developers are instead looking to the design of future cryptocurrencies to reduce energy cost, mostly by moving to new systems of validation that aren’t proof of work. One example that’s gaining popularity is the proof of stake (PoS) system, which relies on how much of a certain cryptocurrency a user has agreed to stake, or hold and not sell.
Each person who agrees to stake cryptocurrency becomes a validator who can validate the authenticity of transactions on the blockchain the same way a miner would. These people are chosen at random, and a certain number of validators have to agree on transactions before they’re added to the chain. Once a new block is created, validators are rewarded with coins and keep the coins they’ve staked.
This uses reduced computing power compared to the race to crunch through equations that comes with mining in a PoW system. Ethereum will soon use a variation of the PoS system to verify new blocks on its blockchain. Other methods are also in development, including proof of history, proof of elapsed time, proof of burn, and proof of capacity.
Initiatives like the Bitcoin Mining Council and the Crypto Climate Accord are also developing new ways to make crypto mining and transactions more energy efficient. The Crypto Climate Accord has a stated goal of running all blockchains on entirely renewable energy by 2025. Some mining operations currently run on renewable energy, but it’s hard to pin down an exact percentage.
These measures can all reduce the energy cost of cryptocurrency and crypto mining, but the issues of e-waste and other environmental consequences still need to be addressed for cryptocurrency to become sustainable in the long term.
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