The desire to invest in cryptocurrency has risen over the past few years. With stories of overnight millionaires, many people have become fascinated by the possibilities of cryptocurrency transactions. In the 24 hours between the 1st and 2nd of June 2022, the total crypto market volume was $92.02 billion, according to CoinMarketCap. Experts expect this figure to grow.
When discussing climate change contributors, it’s easy to recall the mining industry, industrial pollution, and other factors. However, the spotlight is now on the entire cryptocurrency industry. This article explores the environmental concerns of crypto mining, with a focus on the Bitcoin network and Bitcoin's environmental impact. This examines how cryptocurrency mining and transactions could harm the environment.
Before diving into the intricacies of cryptocurrency mining and the industry’s environmental impacts, let’s explore what the industry is. Cryptocurrency, or crypto, is a virtual vehicle of trade that only exists digitally. As a result, cryptocurrency transactions don’t possess physical exchange mechanisms such as a physical coin or dollar notes. You can also simply think of it as digital money.
The crypto marketplace works differently compared to the traditional financial and banking systems. Within this digital marketplace, the currencies continue to hold value as long as people continue to assign value to them.
When exploring cryptocurrency, you’ll most likely come across Bitcoin. Although Bitcoin isn’t the only type of cryptocurrency in existence, it’s currently the biggest and most popular worldwide. The Bitcoin network represents the greater part of all cryptocurrencies2. People use Bitcoin to send money, donate to causes, and purchase luxury goods such as furnishings and cars.
Another thing that distinguishes cryptocurrencies from the regular banking and financial system is that the industry has no central authority. Without centralized authority, people can cross borders through trading and avoid heavy transaction charges. With the absence of central regulators and a completely digital system, it’s easy for insecurity in the system.
Cryptocurrency networks like Bitcoin and Ethereum use a system called Proof of Work (PoW - although Ethereum’s long-awaited switch to Proof of Stake, PoS, looks set for later this year). This entails users validating transactions through complex mathematical puzzles. This challenge contributed to Bitcoin’s invention in 2008 by a programmer or group of programmers with the pseudonym Satoshi Nakamoto4. This also ties into cryptocurrency mining, preventing a single person or group from taking over the network.
We associate traditional mining with extracting materials or valuable minerals from the earth. However, crypto mining operations occur digitally. Since Bitcoin is a digital currency, there’s no physical extraction or digging here.
Bitcoin mining allows people to earn digital currency without putting money down. As a result, this form of cryptocurrency mining involves Bitcoin miners earning rewards in the form of new Bitcoins for completing specific mathematical tasks. Bitcoin mining is the most common way of making or winning new bitcoins. Here, miners address progressively difficult mathematical problems to process bitcoin transactions. This entire cycle is called Proof of Work, or PoW. Currently, the United States is the leading country for Bitcoin mining, with China following closely.
Bitcoin mining, or cryptocurrency mining in general, is in place for two main reasons. First, mining allows the process of new coins or currencies to enter circulation. Essentially, it’s a way of creating new coins. Then, Bitcoin mining also serves as a way of validating new transactions. These make it an essential component of the blockchain’s development and security.
In its initial stages, people could settle mathematical puzzles using typical computers. However, as the mining competition and Bitcoin prices grew, the programmer(s), Satoshi Nakamoto, created a framework where the puzzles would be increasingly complex over time. Throughout the years, as Bitcoin has been growing, people require better technology to tackle these computational riddles.
Bitcoin miners presently utilize specialized computers called Application-Specific Integrated Circuit (ASIC) systems. These computers are specially for cryptocurrency mining as they are more efficient per attempt to solve a puzzle. This increases the possibilities of a miner solving a puzzle first and therefore winning a new Bitcoin.
However, despite these specialized systems aiding people’s chances of winning, they come at an environmental cost. Unlike traditional computers, these specialized versions require greater energy and electricity to power their silicon-based problem-solving algorithms. Although some ASIC systems can be more energy-efficient compared to ordinary computers, it’s important to note that they also require a greater power supply. This is especially true since miners need to run them continuously. As a result, they also require energy for cooling, either through air conditioners or internal fans.
Here, we explore deeper into why cryptocurrency mining operations generally require so much energy. Cryptocurrencies run on decentralization, with methods in place to avoid authoritative control. As a result, these currencies are hard to mine. They also require great computing power to prevent a single person or group from taking over the network. This makes the competition for the currencies even greater amongst crypto miners.
Popular cryptocurrencies like Bitcoin and Ethereum run on the Proof of Work framework. This system depends on individuals solving complex puzzles or mathematical problems to obtain new coins. The Proof of Work framework also aids in checking cyberattacks or other potential security threats. In this light, it ensures that individuals don’t overtake the system.
As miners can convert their coins into real money or spend it where businesses accept bitcoin, as you can imagine, there’s a ton of competition in the crypto mining space. Since everyone is competing to solve the puzzles and get new units of currencies, people who possess the greatest processing power have better chances. As a result, you’ll find that people assemble more extensive mining equipment and entire networks to be on top. Without a centralized authority, miners turn to intensive computational powers to not only operate but also ensure cryptocurrency network security.
With more specialized systems, higher processing power, and built networks, it’s no surprise that there’s more energy required. This, of course, places a toll on electricity generating plants. The world’s bitcoin mining operations are also most likely set up a base in areas where they notice cheap electricity sources.
In this light, one of the most significant environmental issues here is the energy source. What this means is that if there’s heavy demand for energy from non-renewable sources, it has greater adverse effects. This leads to the contribution to carbon emissions and a high carbon footprint.
Uncertainty is one of the biggest challenges with estimating Bitcoin mining’s energy consumption. To generate the target hash, the process requires trial and error on the miners' part. Imagine continuously trying to beat a system over and over, then picture this on a global scale.
We also need to consider that different computer systems have varying energy efficiency levels and cooling systems. The way the system works results in trillions of tries from thousands and thousands of computers from many parts of the world. As a result, research can only rely on estimates to determine how much energy Bitcoin mining activities utilize. This, however, hasn’t stopped experts from trying to ascertain how much electricity and energy Bitcoin operations and mining use.
The Cambridge Bitcoin Electricity Consumption Index reveals that Bitcoin mining uses around 127 Terawatt hours of electricity annually. The numbers show that it consumes more electricity than entire countries like Sweden and Ukraine.
Apart from this University of Cambridge analysis, Digiconomist, a cryptocurrency insights website, presents annualized insights into Bitcoin’s energy consumption. It shows the electrical energy consumption as 204.5 Terawatt hours and carbon footprint as 114.46 metric tons of carbon dioxide emissions.
Single Bitcoin exchanges also have their unique footprints. A single Bitcoin transaction burns around 2096.35 Kilowatt-hours of electrical energy. According to the breakdown from Digiconomist, this consumption is the same amount the average American household consumes in 71.85 days.
The second biggest crypto network, Ethereum, according to Digiconomist, uses 102.38 Terawatt hours of electrical energy yearly. This holds a carbon footprint of 51.22 metric tons of carbon dioxide, comparable to Portugal’s footprint. The analysis also reveals that the average Ethereum transaction can consume 241.48 Kilowatt-hours of electricity, equivalent to the consumption of an average U.S. household for 8.16 days.
It’s easy to understand how cryptocurrency consumes electrical energy through its enormous computational power. However, where does its carbon emissions contribution come from? Well, this comes from the energy sources that the networks rely on. When there’s heavy reliance on power plants running on non-renewable energy sources like fossil fuels, processing cryptocurrency transactions presents significant environmental consequences.
The United States is the largest hotspot for Bitcoin mining, and the country generates most of its energy from fossil fuels. In 2020, fossil fuels accounted for 79%3 of the U.S.’s total primary energy production. Kazakhstan, another big cryptocurrency mining country, relies heavily on fossil fuels for energy production.
The United States had taken over China as the largest mining country due to China’s crypto ban in September 2021. Part of the reason for the ban is the country’s carbon-neutral goal. As a result, many Chinese miners were looking to move their operations to other countries like the U.S. and Kazakhstan.
Within the U.S. alone, cryptocurrency miners are constantly expanding their networks - looking for areas to establish extensive mining facilities. These combined activities heavily load non-renewable power plant sources, contributing to carbon emissions and climate change.
How much energy cryptocurrency mining and transitions consume will most likely continue to increase over time. With global competition and the difficulty in attaining new coins, people will continue to increase their computing power. More people mining means more machines, which all require more energy.
More machines also mean greater competition and the desire to switch to highly specialized systems. With the costs getting higher as well, more energy will most likely be consumed by crypto networks. In this case, it’s a situation of either processing additional transactions or reducing one’s electricity usage. As a result, you’ll find that people go for cheaper and more energy-intensive systems. Unless there’s a shift to more renewable sources, many more millions of metric tons of CO2 will be released into the atmosphere.
Energy usage and its contribution to carbon in the atmosphere top Crypto’s and Bitcoin’s greatest environmental impacts. However, there’s another to explore - waste consumption.
Power plants usually need large amounts of water for cooling. For instance, Greenidge Generation, a Bitcoin mining and power generation company, uses up to 139 million gallons of water from Seneca Lake daily. This enables the plant to stay cool. In turn, the plant releases the water approximately 30 to 50° F greater than the lake’s average temperature. This process not only alters the lake’s natural state but can also put marine life at risk.
Physical electronic waste, or e-waste, is another environmental challenge that Crypto mining presents. Naturally, miners use computers and also more advanced and specialized units like the ASIC rigs. To stay on top of the game, you’ll find that many miners regularly throw out old equipment to accommodate new ones.
With equipment quickly becoming outdated, it’s easy to see how quickly people will consume new versions. Studies reveal that as of May 2021, Bitcoin had an annual e-waste generation of 30.7 metric kilotons1.
Since miners are locked into the fast-paced nature of the system, they’re discarding equipment faster than ever. We can compare this to the small IT equipment waste that countries like Italy and the Netherlands generate. Electronic waste presents many challenges to the environment and safety. There’s the problem of heavy metals and toxic chemicals leaching into the land or soil. On the other hand, improper recycling of old e-waste contributes to water and air pollution.
The energy-intensive Proof of Work is the dominant validation method for cryptocurrencies. We’ve already explored in detail the amount of energy this method uses. Bitcoin, the largest cryptocurrency, uses this method of validation that requires immense energy use to carry millions of servers at the same time.
However, despite the dominant use of this validation method, not all cryptocurrencies use the same system. Chia and Nano are examples of cryptocurrencies that don’t run on Proof of Work. As a result, they require less power consumption and, therefore, fewer carbon contributions. Since blockchain validation is still a necessary part of these networks, we’re seeing other validation systems pop up.
Due to the growing conversations and demands for positive changes, Ethereum has pledged to change its framework. The second-largest cryptocurrency is shifting to Proof of Stake from Proof of Work. Unlike Proof of Work, Proof of Stake randomly selects miners at a time to validate cryptocurrency transactions. This method, therefore, uses less computing power. Other validation methods are also coming up, raising the question of if the cryptocurrency industry can reduce its impact.
Cryptocurrency isn’t going anywhere anytime soon. Instead, to tackle its environmental impact, people are looking for new ways to handle its validation methods. From developers to crypto initiatives, you’ll find steps being taken to enable change. These changes can support environmental conservation and reduce crypto’s reputation for being bad for the environment.
One of such efforts has been to repurpose greenhouse gas emissions from oil drilling sites. Instead of letting part of the gas get released into the air, some oil and natural gas companies are looking to repurpose the byproduct and use it for Bitcoin mining.
This process entails using the gas to power mobile generators that serve mining pools and rigs. Although this might appear like a long-term solution at first glance, climate experts are saying otherwise. They warn that simply discovering alternate uses for waste gas won’t solve global warming and the climate crisis. The real challenge here is confronting the need to reduce fossil fuel usage.
Another effort people in the industry are turning to is setting up power plants in regions where wind power is bountiful. An example of such a region is West Texas. The point of this is to harness renewable energies to power mining servers. This further opposes heavy reliance on non-renewable energy sources like fossil fuel plants to power heavy equipment. Although these are steps to curbing the industry’s effects, they aren’t necessarily long-term solutions. The industry needs to tackle its environmental issue from its root. This points to the need to reevaluate its methods of validation and operations.
Consequently, crypto engineers are now adopting new ways of enabling validation. Rather than focusing solely on a system like Proof of Work, they’re creating alternative methods. The goal of such new validation systems is to reduce the industry’s computational power and energy. These developers realize that processing transactions don’t have to be as energy-intensive as it currently is. By shifting focus, they can create new methods that are secure and reduce the industry's overall impact. One of such systems that is now a subject of discussion is the Proof of Stake consensus mechanism.
Proof of Stake isn’t based on the fast-paced, racing, and heavy competition model of the PoW system. Instead, this consensus mechanism requires that intending participants put their digital currencies as collateral before participating as validators in the system. By agreeing to stake cryptocurrency, someone becomes a participant in validating the authenticity of transactions.
Validators are selected randomly for a chance to validate transactions and earn rewards. The primary advantage of this system is that it reduces the need to keep increasing computing power. It allows you to mine cryptocurrency without the enormous energy required. This can also pour into reducing the amount of electronic waste since people don’t necessarily need to build larger and larger mining rigs to compete. Some cryptocurrencies that implement this system include Cardano and Atmos. Ethereum is also shifting to this system to utilize a faster and less resource-intensive mechanism.
Apart from Proof of Stake, some other mechanisms are coming up. These include Proof of Burn, Proof of History, Proof of Capacity, and Proof of Elapsed Time. Although these new systems are coming up, there’s still no system that has leveled up to the size and security of Bitcoin’s Proof of Work system. Due to this, this mining system is still in place with its growing consumption.
To tackle this issue, the cryptocurrency industry must embrace sustainable alternatives to supply electrical energy for operations. Initiatives such as The Crypto Climate Accord are also in place to champion energy-efficient and sustainable changes.
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Cho, R. (2021, September 20). Bitcoin’s Impacts on Climate and the Environment. Columbia Climate Schoo
U.S. Energy Information Administration. (2021). U.S. Energy Facts Explained
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Jen’s a passionate environmentalist and sustainability expert. With a science degree from Babcock University Jen loves applying her research skills to craft editorial that connects with our global changemaker and readership audiences centered around topics including zero waste, sustainability, climate change, and biodiversity.
Elsewhere Jen’s interests include the role that future technology and data have in helping us solve some of the planet’s biggest challenges.