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What is the environmental impact of cryptocurrency?
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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 a lot of energy. But the race to build the fastest mining rig generates more electronic waste than fat bank account accounts.

How much does cryptocurrency impact the environment? Are mining and trading with crypto really contributing to climate changes? Here’s the latest information.

How much energy is too much?

The mining process is what creates new digital coins. This is the most obvious impact on the environment. This is known as Bitcoin mining, but many cryptocurrency forms rely on mining. But since Bitcoin’s release, it’s become progressively harder to mint new units of currency through mining. This was intentional, since the currency was limited to 21 million units. The less units that can be mined, the more computational power required to make 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.

Single Bitcoin Transaction Footprints

(Image: Digiconomist)

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.

Although electricity may appear to be a clean source, many countries use fossil fuels to produce it. This adds to carbon in the atmosphere and increases 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. Mining requires computers, graphics cards, ASIC rigs and other equipment. 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?

bitcoin footprint

(Credit: Digiconomist)

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 is what makes cryptocurrency decentralized. It means that they are not controlled by a single person. 

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 created to combat cyberattacks in which one person creates fake identities and takes control of the majority of the network.

Everyone on the network wants to solve these equations first and receive the monetary reward. The person with the highest processing power has the best chance of winning. This makes it possible to build larger mining rigs, or even networks of mining machines, that can tackle complex equations more quickly. Because the size of the network that is used to mine the coins determines the amount of energy required, it is necessary to use ever more energy.

The price and availability for electricity can also impact the volume of cryptocurrency mining operations. If electricity is cheaper in one place (or even a part of one country), it makes business sense 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 impact of crypto mining power plants on the ecosystem can also be significant. 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?

proof of stake


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 great ideas in theory but it could prove difficult to implement them if Bitcoin’s price crashes.

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. The proof of stake (PoS), which is based on how much a user has agreed or held and not sold, is gaining popularity.

Each person who agrees or holds cryptocurrency becomes a validator, who can verify the authenticity of transactions on blockchain the same way as a miner. 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 requires less computing power than the race to solve equations that is associated with mining in a PoW scheme. Ethereum will soon use a modified PoS system to verify new blocks added to 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 to run all blockchains entirely on 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 reduce the energy cost of crypto mining and cryptocurrency, but there are still issues with e-waste that must be addressed if cryptocurrency is to be sustainable over the long-term.

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