It’s easy to imagine that if you haven’t already invested in cryptocurrency, you’ve missed out on something akin to a 21st century gold rush. Such has been the hype over the likes of Bitcoin and Ethereum. But – the recent crash in ‘crypto’ aside – you may have actually saved yourself from partaking in an environmental catastrophe. Cryptocurrency ‘mining’ – by which crypto is validated and minted – is highly energy-intensive. And by highly, this is equivalent to the energy use of entire countries.
While there’s no direct way of assessing the amount of electricity used, the Cambridge Bitcoin Electricity Consumption Index (CBECI) – a research institute focusing its work on crypto’s novel technology – has calculated that Bitcoin uses some 121.36 terawatt-hours (TWh) a year – that’s more than Argentina, or the Netherlands, or the UAE used in 2020. Another study suggests that to mine one dollar’s worth of Bitcoin takes double the energy required to mine the same in gold, platinum or copper.
Digiconomist, a platform that studies the unintended economic consequences of digital trends, also puts each crypto transaction at the energy equivalent of the average US household over 74 days, with the Bitcoin network responsible for an annual CO2 output equivalent to that of the Czech Republic.
That’s because – to massively simplify – crypto (and there are over 15,000 different crypto currencies operating on over 400 exchanges around the world) is created through what’s known as a ‘proof of work’ model – a consensus mechanism that allows users to validate crypto transactions by solving complex mathematical problems. That is, in effect, a huge game of ‘guess the number’, with the quintillions of guesses per second required 24/7 to play this game requiring immense computing power.
That uses vast amounts of electricity – and often drives miners to use the cheapest, alternative electricity sources. But the issue is that the mining is deliberately energy-intensive to help secure the currency, by making it prohibitively expensive for one party to take control of an entire crypto network. Energy intensiveness is a feature, not a bug. What’s more, because there’s a finite amount of Bitcoin, for example, the more units are minted, the fewer units there are to mine and the more computing power you need to do so.
On top of this, since this computing power is highly specialised, and needs regular upgrading, there’s the electronic waste too. By one measure, Bitcoin generates 37 kilotons of electronic waste each year. That is enough to cover the e-waste of Luxembourg – with a population of six million people – five times over.
That’s all something for Gen Z and Millennials – who account for 94 per cent of cryptocurrency investment – to ponder. Remarkably, a Forbes survey this year suggests that 41 per cent of respondents aged 18 to 25 still believe crypto has no impact on the environment, with 18 per cent saying it was actually good for it.
‘The environmental impact of cryptocurrency has had more attention over recent years but most people still don’t understand just how bad it is. And the problem is that if you’re a user of mining networks you’re not really confronted with the costs,’ explains Alex de Vries, a doctoral candidate at the University of Amsterdam and the founder of Digiconomist.
‘The bigger the reward, the more miners are ready to invest in this energy-intensive computing power,’ he adds. ‘The Bitcoin world is a mix of groups that don’t know how bad it is for the environment – even some environmental NGOs were investing in crypto up to a year ago – and those that do know but don’t want to think about it. That’s because if you knew and cared the only response would be to get out of cryptocurrency as soon as possible.’
Regulating for Greener Mining
Can change come from within? Some mining companies have pitched themselves as having green credentials – Miners DeFi, for example, says it operates on hydro-electric power. Signatories of the Crypto Climate Accords – a non-profit looking to eliminate carbon emissions from the crypto industry – have committed themselves to decarbonising the industry by 2040. And the industry – such as it’s a unified body at all – has also attempted some self-regulation in moving towards a lower energy ‘proof of stake’ model, which replaces the size of a miner’s computation power with the size of the collateral they can put up. Ethereum is one currency that says it’s shifting to this approach, but has yet to actually do so.
As Alexander Neumueller, project lead at the CEBCI notes, ‘electricity consumption is only one part of the story – how the electricity is being generated plays a crucial role too. It is also important not to measure everything by the same yardstick: and the electricity consumption of proof of work and proof of stake-based networks is fundamentally different.’ Other models are also being considered.
‘But the problem is that making a change like this [to a new model] industry-wide isn’t just a technical issue but a social one – it requires everyone in a cryptocurrency to upgrade at the same time, and some parties won’t because it’s just not in their interest to do so,’ reckons De Vries. ‘Basically the crypto community has to change itself. And it’s not really up for discussing that yet.’
This is why regulation has started to come in at the state and inter-governmental level. New York State (the US is by far the biggest country for crypto mining) has a bill in the pipeline to outlaw proof of work mining if the electricity source comes from fossil fuels, while the EU attempted to regulate against the proof of work mining model but failed to pass legislation – ‘the industry lobby is too powerful,’ De Vries suggests.
Part of the problem, of course, is that cryptocurrency was created to be decentralised, beyond state control and censorship – that’s why, it’s claimed, it’s been a boon to those disenfranchised from the global financial system; it reduces the accumulation of wealth by this system too.
Last year China, as well as Iran, Morocco, Qatar, Algeria and Egypt, led the way in banning the mining of cryptocurrency (in part for environmental reasons) but, as de Vries says, since these computers can sit in anyone’s house, that likely has just driven it underground, after which any further regulation is next to impossible. Or it shifts crypto mining to countries that may be more fossil fuel-dependent – assuming, that is, their grid can take it. In some cities, in Iran and Kazakhstan, crypto mining has caused blackouts. In others, in Montana and Indiana, coal-fired power stations facing closure have been reprieved following deals to supply local digital miners with electricity.
Another approach may be to target investors in crypto so the value of their investment drops, and so enthusiasm for mining crypto drops too; or to introduce environmental taxes on crypto; or to introduce mandatory disclosure of crypto holdings – but all of this mitigates against the raison d’etre of crypto.
Small wonder then that there is, at best, a measured optimism on the outlook for this situation, even as environmental considerations become a greater part of all sorts of investment decisions, from oil and gas to agriculture and EV batteries. After all, ‘some people made a lot of money very quickly [with cryptocurrency] and this captures lots of attention. As with most emerging industries, nobody wants to hear about the environmental impact of the new ‘cool’ thing being produced,’ notes Benjamin Jones, assistant professor of economic at the University of New Mexico and a world expert in cryptocurrency economics.
‘Yet, thanks to ongoing research, we are getting a better understanding of the massive energy use and the associated impacts that this energy use has on our environment and on human health – it’s large and consequential,’ he stresses. ‘I think the narrative is starting to change, and rightly so. However, the problem is a global one and I’m skeptical of global efforts to affect change [away from the proof of work model].’
There needs to be a lot more research, a lot more pressure on policymakers, the media and the public to bring more informed discussion, he says. Until then, with major banking institutions now expressing interest in crypto, the energy-intensiveness of crypto mining is only likely to go up before it comes down.