What is the environmental impact of cryptocurrency? A closer look at the sustainability concerns

Cryptocurrency, a digital currency aimed at eliminating intermediary costs and decentralizing control, necessitates energy, equipment, internet access, and a global network infrastructure for functionality. Consequently, it exerts a significant environmental footprint, with certain cryptocurrencies consuming energy equivalent to that of small nations to sustain their blockchain operations. Moreover, there are apprehensions regarding cryptocurrency's water usage. Delve further to understand the environmental implications of cryptocurrency.

Energy usage of cryptocurrencies

There isn't a direct method to determine the energy consumption for Bitcoin and cryptocurrency mining, but estimates can be derived from the network's hashrate and the energy used by commercially-available mining rigs. For instance, the Cambridge Bitcoin Electricity Consumption Index approximates that Bitcoin, the most extensively mined cryptocurrency network, consumes an estimated 140 Terawatt-hours (TWh) of electricity annually, equivalent to 0.63% of global electricity consumption, and approximately 352 TWh of energy at the point of production, surpassing the energy usage of countries like Pakistan and Ukraine according to 2019 energy estimates.

Another estimation by Digiconomist, a cryptocurrency analytics platform, pegged the figure at 138 Terawatt-hours based on energy consumption until December 11, 2023. This translates to approximately 773.61 kilowatt-hours of electricity per transaction, equivalent to the average energy consumption of an American household over 26 days.

Based on energy consumption until December 11, 2023, Ethereum, the second-largest cryptocurrency network, was projected to utilize 0.01 Terawatt-hours of electricity annually. On average, an Ethereum transaction necessitated 0.02 kilowatt-hours of electricity.

The energy consumption associated with cryptocurrency mining is expected to fluctuate over time, influenced by evolving prices and shifts in user adoption. Cryptocurrency mining operates within a competitive framework: as the value of block rewards rises, the motivation to engage in mining activities also increases. Elevated cryptocurrency prices lead to heightened energy usage by crypto networks, as more individuals join mining networks in pursuit of profits from the upward trends.

What factors contribute to the energy consumption associated with cryptocurrency mining?

The high energy consumption in crypto mining is intentional, not accidental. Bitcoin mining involves the automated validation of Bitcoin transactions, eliminating the need for trusted third parties such as banks. The design of the transaction validation process inherently requires substantial energy, relying on the computational power of numerous computers. This reliance ensures the security of cryptocurrency blockchains utilizing proof-of-work consensus mechanisms.

Some cryptocurrencies employ alternative validation methods

Not all cryptocurrencies rely on energy-intensive mining processes. Ethereum, Solana, and several others utilize systems that demand minimal energy, thereby contributing little to the environmental footprint already generated by global networking infrastructure and daily usage.

Environmental impacts of cryptocurrency mining

Assessing the carbon footprint of cryptocurrencies is complex. While fossil fuels dominate energy sources in many mining regions, miners prioritize cost-effective energy to maintain profitability. According to Digiconomist, the Bitcoin network produces approximately 73 million tons of carbon dioxide annually—equivalent to Oman's emissions. As of December 2022, Ethereum emitted an estimated 35.4 million tons of carbon dioxide, which dropped to 0.01 million tons post-transition to proof of work.

Driving factors

Greed and a fear of missing out on lucrative opportunities drive the high energy consumption of Bitcoin and similar cryptocurrencies. These blockchains adjust mining difficulty based on network strength, resulting in reduced energy usage per transaction with lower computing power. However, entities with substantial resources flood the network with energy-intensive machines to gain competitive advantages in receiving rewards. This cycle attracts more participants, expanding the group's size and energy consumption, as financial gains often outweigh environmental considerations.

Major contributors to mining impact

According to research from the University of Cambridge, significant Bitcoin mining activities are concentrated in the United States (38%), China (21%), and Kazakhstan (12%). Approximately 76% of China's energy consumption is derived from coal and crude oil, while the United States primarily relies on fossil fuels for electricity generation, as per 2019 data from the Energy Information Administration (EIA). Kazakhstan also predominantly utilizes fossil fuels. Consequently, these three nations, heavily reliant on fossil fuels, account for approximately 72% of global Bitcoin mining activity.

Electronic waste generation

Cryptocurrency mining leads to substantial electronic waste accumulation as mining hardware becomes quickly outdated, particularly Application-Specific Integrated Circuit (ASIC) miners designed for popular cryptocurrencies. Digiconomist estimates that the Bitcoin network alone generates roughly 72,500 tons of electronic waste annually.

Water usage concerns

Given the heat generated by mining machines, water cooling systems are commonly employed by miners, manufacturers, and maintenance personnel to mitigate equipment cooling costs. In certain instances, large mining facilities discharge warm water into lakes or other water bodies, raising concerns about elevated temperatures or contamination. However, the precise implications of these practices remain uncertain due to inadequate research on water consumption and potential contamination.

Is it feasible for cryptocurrency mining to reduce its energy consumption?

Large-scale cryptocurrency mining operations are typically situated in regions with abundant, reliable, and affordable energy resources. However, the process of processing cryptocurrency transactions and generating new coins doesn't inherently require significant energy consumption.

The proof-of-stake (PoS) consensus mechanism presents an alternative to traditional cryptocurrency mining that doesn't rely on extensive computational power. In this system, the authority to validate transactions and maintain the crypto network is granted based on the amount of cryptocurrency a validator stakes or puts up as collateral, incentivizing honest behavior and fee earnings.

Various other validation methods, including proof of history, proof of elapsed time, proof of burn, and proof of capacity, are also under development. While Ethereum has transitioned away from its proof-of-work mechanism, leading to a projected 99.9% reduction in carbon emissions, no similar objective exists within the Bitcoin community. Considering Bitcoin's widespread popularity, mining, despite its significant energy costs, is likely to persist.

Does cryptocurrency have a positive impact on the environment?

Certain cryptocurrencies necessitate substantial energy consumption and specialized equipment, resulting in significant waste generation, rendering them environmentally unfriendly. Nevertheless, it's crucial to acknowledge that the production and maintenance of fiat currency and our existing banking system also entail considerable energy usage.

Is it possible for Bitcoin to adopt environmentally sustainable practices?

In essence, due to the energy-intensive, competitive, and incentive-driven validation process, it's improbable that Bitcoin will decrease its energy consumption. Even once all bitcoins have been rewarded, the network will continue to demand significant electricity for transaction validation unless it transitions to an alternative verification protocol.

What proportion of cryptocurrency utilizes renewable energy sources?

Insufficient official data currently exists to determine the proportion of energy consumed by cryptocurrencies sourced from renewable sources.

The Bitcoin network and similar cryptocurrencies consume significant amounts of energy. Advocates argue that this energy expenditure is justified as these virtual currencies provide financial access to millions lacking loans, banking, or other services. Opponents contend that cryptocurrency is valueless and its energy usage wasteful, while others assert that it primarily benefits affluent entities able to afford expensive mining equipment.

Irrespective of supporters' and skeptics' viewpoints, cryptocurrency has undeniable environmental ramifications, primarily driven by energy consumption largely derived from fossil fuels. At a time when global efforts are focused on reducing carbon emissions, the emergence of another profit-driven entity at the planet's expense is deemed unnecessary and counterproductive.