As the world grapples over how to combat climate change, we’ve identified major offenders as fossil fuels, resource mining, and industrial pollution, but in recent years, the debate has shifted to cryptocurrency.
As crypto capitalists compete to see who can find the next block on the chain by attempting to build massive mining rigs in order to be rewarded. Ignoring the fact that those rigs are producing more pollution than full crypto wallets.
What’s the environmental impact of cryptocurrency?
To comprehend the environmental consequences of cryptocurrency, we must first fully understand the process how new coins are created. Since cryptocurrencies are not governed by a central authority, unlike the US dollar, which is printed by the Federal Reserve.
The blockchain relies on network users all over the world to validate transactions and add new blocks of information to the blockchain. As a result, it is automated and reliant on its own network.
Proof of work (Pow) is a consensus mechanism that allows users to validate cryptocurrency transactions by solving a complicated mathematical procedure. It is known to be very difficult and costly to verify, and it helps protect against bad actors attempting to manipulate this new information and steal tokens off the blockchain.
The first person to solve each block’s puzzle and validate the transaction receives a fixed amount of cryptocurrency. The cycle then repeats itself until all blocks have been mined.
When someone “mines” cryptocurrency, they are actually running programs on their computer in an attempt to solve the problem. The more powerful your computer, the better your chances of receiving the right to update the blockchain and reap the benefits. As a result, miners are incentivized to put more power behind their mining operations in order to outperform their competitors and ultimately make more money.
According to the University of Cambridge, Bitcoin alone generates 132.48 terawatt-hours (TWh) per year, easily exceeding Norway’s annual energy consumption of 123 TWh in 2020. The amount of CO2 emitted by this energy usage will differ depending on how that energy was generated. However, in 2020, the United States — where 35.4% of Bitcoin mining occurs since China banned cryptocurrency mining in 2021 — produced.85 pounds of CO2 per kWh. This equates to nearly 40 billion pounds of CO2 emissions from Bitcoin mining in the United States alone.
Furthermore, every four years or so, the amount of Bitcoin distributed is cut in half, referred to as halving. The last halving occurred in 2020, when the reward was reduced from 12.5 coins to 6.25 coins. The reward will be reduced to 3.125 coins in 2024, and so on. The carbon emissions required to produce one coin are doubled overnight after each halving.
Could Cryptocurrency Mining Use Less Energy?
Large-scale cryptocurrency miners are frequently located in areas where energy is abundant, reliable, and inexpensive. However, cryptocurrency transactions and coin minting do not have to be energy-intensive.
The proof-of-stake (PoS) method of validating cryptocurrency transactions and minting new coins is a low-computing-power alternative to cryptocurrency mining. To put it simply, you create crypto using crypto.
While Ethereum developers aiming to phase out the proof-of-work mechanism and switch to proof-of-stake there is no such goal in the Bitcoin community.
Other validation methods are also being developed, such as proof of history, proof of elapsed time, proof of burn, and proof of capacity.
Is Cryptocurrency Environmentally Friendly?
Some cryptocurrencies have high energy requirements, require specialized equipment, and generate a lot of waste. Some are not environmentally friendly in that sense; however, it is important to consider the environmental costs of gathering natural resources and expending energy and electricity to create and maintain fiat currency and our current banking system.
The future of crypto and the environment
Despite advancements in alternative sources of cryptocurrency generation, proof of work mining shows no signs of slowing down as the Bitcoin energy consumption keeps increasing with time.
The question for proof of work mining is finding a sustainable way to supply the electricity required for the computing power that these miners use. This entails shifting mining operations away from the United States and toward countries with more green energy generation options.