Crypto’s High Price Tag Comes with a Hidden Carbon Cost

Ask people in the cryptocurrency industry and they will speak of boom times – Bitcoin, one of the most in-demand currencies, for example, started 2024 with a value around US$40,000. By the end of 2024 it was closer to $100,000. US regulators cleared Bitcoin exchange traded funds for take-off. A new US president was elected with a pro-crypto campaign. Those into crypto – excluding the many who are still wondering what cryptocurrency is, exactly – are proclaiming 2025 as the year when political, regulatory and technological forces will come together to finally unleash the potential in these ‘digital assets’.

But for all of this talk – or hype, if you like, seeing as the crypto bonanza has been compared to a 21st century gold rush – there still isn’t much talk of its environmental impact. Indeed, most people – inside and outside of the industry – seem unaware of the high energy impact of the so-called ‘mining’ of cryptocurrency, the process by which it is validated and minted. Why? Because mining – crypto 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 – requires a huge amount of computing power, essentially whirring away 24/7.

‘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 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 [not long ago] – and those that do know but don’t want to think about it.’

In fairness, crypto is not alone in its predicament. Our ever-expanding use of AI, the internet, cloud storage and streaming services, will impose an ever-growing, and potentially crippling, burden on global electricity supply. And, since we have yet to crack how to generate – and, more challenging still, store – electricity generated renewably on a scale to compete with fossil fuels, it’s likely much of that electricity will be ‘dirty’. That’s the unspoken conundrum likewise facing the rush towards the electrification of our vehicles – the electricity that powers them still has to come from somewhere in a market of limited green capacity.

Crypto’s Dirty Deal

But the figures around crypto might provide a wake-up call to this larger problem, not least because crypto 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. Indeed, the value of crypto and its energy use are heavily correlated. Inevitably, to keep prices down, miners turn to the cheapest, and invariably the dirtiest, electricity sources: 65 per cent of Bitcoin mining’s energy supply is accounted for by coal or gas, according to the United Nations. Only 7 per cent is wind or solar.

Yet consider the reaction if it was revealed that car manufacturers were inflating the prices of their electric vehicles in order to create a more exclusive, luxury image around them. Likewise, since the likes of Bitcoin – just the most famous of the 15,000 so or so crypto currencies around – is in finite supply, even more electricity is required to mine whatever remaining units there are. Again, imagine electric cars becoming not cheaper the more units the carmaker sold, as classical economics might predict, but more expensive.

While there’s no direct way of assessing the amount of electricity used, the Cambridge Bitcoin Electricity Consumption Index – a research institute focusing its work on crypto’s novel technology – has calculated that Bitcoin mining uses some 27 terawatt-hours (one terawatt hour being equal to outputting one trillion watts for one hour) – that’s more than Argentina, or the Netherlands, or the UAE used in 2020. In some cities, in Iran and Kazakhstan, crypto mining has caused blackouts.

The latest research suggests that the challenge isn’t just confined to the mining either. ‘Spending’ bitcoin is incredibly energy intensive too, even more so. According to a new study by the London School of Economics’ Nuri Onat and Murat Kucukvar, while mining has a significant carbon footprint embodied in its complex global supply chains, annually Bitcoin transactions demand huge amounts of electricity as well: they estimate 63 terawatt-hours annually. 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.

Add in the fact that the countries doing most of that mining, so far, also have some of the most lax regulations on emissions – the United States, Russia, Kazakhstan, for example – and crypto, for all of its bewildering promises of a global currency free of state and banking interference, starts to look, at best, environmentally problematic.

As the LSE report notes, even Norway – which has largely clean energy grid but is in the world top 10 Bitcoin mining nations, alongside the supposedly green-minded likes of Germany, Ireland, Canada and the UK – tallies up mining-related emissions through the specialist equipment it imports from China. 

Building a Sustainable Blockchain

Is there an environmentally-sound way forward? Signatories of the Crypto Climate Accords have committed themselves to decarbonising the industry by 2040, while elements within the industry have 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. 

‘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 Alexander Neumueller, project lead at the Cambridge Centre for Alternative Finance. ‘Basically the crypto community has to change itself. And it’s not really up for discussing that yet.’

Some steps have been taken. In 2023 New York State introduced regulations that meant that any business in ‘virtual currencies’ would need to have a licence to operate. The EU also introduced the world’s first comprehensive crypto regulations that year but these – along with similar legislation in Japan, South Korea and Brazil – are more about protecting investors and heading off crypto’s use in money laundering or the funding of terrorism than tacking emissions. 

And take the US’ Energy Information Administration, which in January 2024 initiated a survey to collect information about estimated energy uses from 52 facilities across the country – until, that is, in February the Texas Blockchain Council initiated a lawsuit to stop the data collection, its motion being granted. It was consequently guessed at that energy usage was likely higher than the EIA has predicted.

The United Nations has raised concerns about the energy intensity of crypto, its report in 2023 calling not for its use to be discouraged, so much as for regulatory interventions to ‘improve the efficiency of the global financial system without harming the environment’, adding that if Bitcoin were a country its annual energy consumption now puts it 27th in the world, the equivalent of operating 190 gas-fired power plants. 

There’s also much chatter of introducing environmental taxes on crypto too, but nothing so far. Or talk of the need to plant trees to offset crypto mining, though just two years of mining would require the planting of almost 4 billion trees, equivalent to 7 per cent of the Amazon, so that’s not likely. Certainly some countries – among them China, Iran, Morocco, Qatar, Algeria and Egypt – have taken the view that banning the mining of cryptocurrency is easier. But, as de Vries notes, since computers can sit in anyone’s house, that likely has only driven it underground, after which any further regulation is next to impossible. 

Part of the problem, of course, is that cryptocurrency is meant to not be easy to regulate. It was created to be decentralised, beyond centralised control or 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. All of which may be a good thing – just not for the planet. 

Benjamin Jones, assistant professor of economic at the University of New Mexico and a world expert in cryptocurrency economics, argues that first we need a clearer idea of just how bad crypto’s impact may be in order to both act appropriately and to get the message out there to those considering investing. 

‘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. I think the narrative is starting to change, and rightly so,’ he says. And with this, he suggests, may come a change in crypto’s public image. Right now it’s edgy, rebellious, even fashionable. ‘[But] as with most emerging industries, nobody wants to hear about the environmental impact of the new ‘cool’ thing being produced’.