Ever since the creation of Bitcoin in 2009, the cryptocurrency market has staked its claim as the 21st century gold rush. Investors have made and lost millions in the digitized crypto trade, and as of 2021, over 100 million people are using cryptocurrencies.
Whether you’re hoping to strike it rich, or you think that crypto investors are chasing fool’s gold, it is probably here to stay, and so is the massive amount of energy that is required for its operation.
What is cryptocurrency?
Mainstream cryptocurrencies such as Bitcoin and Ethereum are defined by three main qualities: they can be mined and used internationally, are not regulated by a central authority, and their value can be quite volatile.
Crypto’s unique security system, investment potential, and convenience have led to its rise in notoriety over the past decade. Because of a recording technology called blockchain, cryptocurrency is considered very secure, almost impossible to counterfeit, and able to operate without a regulation authority.
The volatility of cryptocurrency creates opportunities for considerable financial gain or significant loss. Trading cryptos also allows for lower transaction fees for online money exchanges and may be an enticing option for unbanked individuals.
Earning Coins Takes Big Energy
Here’s where things get complicated. At first glance, deviating away from paper money and plastic credit cards seems like an effective way to conserve resources. However, most cryptocurrencies are produced through a process called mining, which requires extensive computing power. To mine cryptocurrency, high-powered computers from around the world race against each other to verify and record cryptocurrency transactions; the first computer to do so is rewarded with cryptocurrency coins.
But the intense computations involved in the mining process require massive amounts of energy, and much of this energy is derived from fossil fuels. Mining rigs operate 24 hours a day, and Digiconomist estimates that one Bitcoin transaction uses the same amount of energy as powering the average US household for 53 days.
As cryptocurrency becomes more popular and prices rise, mining competition intensifies, and more energy is consumed. As more miners enter the cryptocurrency market to compete for coins, the probability that a single computer will win the race to solve a given computation goes down, and it becomes increasingly difficult to make a profit through mining. This carbon-emitting cycle causes miners to continually up the processing power of their servers to increase their chances of striking gold, which requires more and more energy.
The mining process also produces a significant amount of electronic waste. As the special hardware required to mine crypto is updated and older versions become obsolete, most previous technology is thrown away. Mining technology is highly specialized and can’t be repurposed; Digiconomist estimates that the bitcoin network alone creates eight to 12 thousand tons of e-waste every year.
It’s Only Getting Dirtier
Environmentalists have raised concerns about the oppositional relationship between cryptocurrency prices and mining efficiency. On the Bitcoin network, the computations required to mine get more complicated as the price of bitcoin increases, extending time required to solve each problem increases but computing power stays constant. Therefore, as the price increases, the network will have to use more computing power (and fuel) in order to process transactions.
“The hard part about cryptocurrency is because people can mine it and create anywhere in the world,” says Brady Quirk-Garvan, co-owner of the Money With A Mission Team at Natural Investments LLC {GBN} and Green America board member. “You can’t really standardize and say, ‘this currency is only created from renewable energies, or is even low carbon.’”
The location of mining is important because it determines the type of fuel that is used to produce electricity. According to researchers at Cambridge University’s Centre for Alternative Finance, roughly 65% of bitcoin mining is based in China, which is heavily dependent on coal. CNBC reported that the fossil fuels used to mine bitcoin release more yearly carbon dioxide emissions than New Zealand (about 36 million tons per year).
“The good news is that the overall policy framework in China is conducive to climate action,” says Marilyn Waite, co-host of the China Cleantech podcast and head of the climate and clean energy finance portfolio at the Hewlett Foundation. “China is the largest market for solar panels and electric vehicles. Now, the challenge in China is to not build any new coal fired power plants, retire the old existing coal power plants, and replace them with renewable energy. Those climate-friendly investments will lead to decarbonization, and therefore everything, including blockchain activities, will become greener.”
In September 2021, China declared all cryptocurrency transactions illegal. How this will affect mining and the market is still unclear because the country had banned cryptocurrency trading in 2017 and it remained a hub for mining and trading.
A relatively new coalition of cryptocurrency firms, renewable energy producers, and even a crypto-friendly environmentalist group called the Crypto Climate Accord is dedicated to expediting this process of greening cryptocurrency. They’re pursuing this goal through a combination of improving cryptocurrency mining methods, using 100 percent renewable energy, and using open-source technology to anonymously and transparently report on how much mining is actually green. Bitcoin and Etherium are not currently signatories of the Crypto Climate Accord; you can see the supporters and signatories at cryptoclimate.org.
As of 2021, the BBC and Digiconomist reported that each year, the Bitcoin and Ethereum networks use about 180 terawatt-hours of electricity combined; that amount of energy could power over 15 million homes for an entire year.
“Mining cryptocurrency is just like any other economic activity—what is causing it to be harmful for the planet and for the climate is the underlying energy sources that we use,” says Waite. “Mining cryptocurrency though very inefficient in energy use, is not inherently climate change-causing. Because our energy systems are mostly fossil fuel-based, any economic activity, whether it’s manufacturing EVs or industrial agriculture, is going to have this negative impact on climate change. To solve that we need to do what we should be doing anyway: transforming our energy systems to low-carbon resources.”
