- In the US, Bitcoin mining creates an estimated 40 billion pounds of carbon emissions.
- The proof of work mining requires a lot of computing power which uses amounts of electricity capable of powering countries.
- The cryptocurrency industry is looking to reduce 100% of its carbon emissions by 2030.
- Read more stories from Personal Finance Insider.
Like the mining industry, the cryptocurrency mining industry has serious environmental ramifications as a result of the energy-intensive process through which coins are created. But unlike the mining industry, the cryptocurrency industry may start changing the way it operates.
Here’s what you need to know about why cryptocurrency mining is unsustainable and the new developments that might change that.
What’s the environmental impact of cryptocurrency?
To understand the environmental impacts of cryptocurrency, we must first understand how new coins in a cryptocurrency are created. Because cryptocurrencies aren’t regulated by a central authority, the blockchain relies on users to validate transactions and update the blockchain with new blocks of information. To protect against bad actors attempting to manipulate this new information, these blockchains need to be very difficult and costly to verify. Thus proof of work was implemented into most cryptocurrencies.
Proof of work is a consensus mechanism that allows users to validate cryptocurrency transactions by solving a complicated mathematical problem. The first person that solves the puzzle validates the transaction and is awarded a fixed amount of cryptocurrency. Then the cycle starts again. It’s the most widely used consensus mechanism.
When someone “mines” cryptocurrency, they’re actually running programs on their computer that are trying to crack the problem. The greater the power behind your computer, the greater chance you have of winning the right to update the blockchain and reap the rewards. So miners are incentivized to put more power behind their mining operations to beat their competition.
Application-specific integrated circuit (ASIC) miners, very powerful computers designed with the sole purpose of mining a particular cryptocurrency algorithm, were created to further optimize computing power towards solving these proof-of-work problems. Though ASIC miners can be used to mine any cryptocurrency, they are now essential for mining Bitcoin since the competition is so tough.
“Every time more people mine more Bitcoin, the competition rises,” says Junior Theomou, the founder of Miners DeFi, a Bitcoin mining company that operates on hydropower electricity. “The more machines on the market, the more difficult it becomes to mine Bitcoin. So now you have a competition going on, with more and more machines, mining and competing within each other.”
The University of Cambridge estimates that Bitcoin alone generates 132.48 terawatt-hours (TWh) annually, which easily surpasses the annual energy usage of Norway at 123 TWh in 2020. The amount of carbon dioxide emitted by this energy usage will vary depending on how that energy was created. But in 2020, the US — where 35.4% of Bitcoin mining takes place since China banned cryptocurrency mining in 2021 — created .85 pounds of carbon dioxide per kWh. This results in nearly 40 billion tons of carbon dioxide produced by US Bitcoin mining alone.
Additionally, every four years or so, the amount of Bitcoin that is distributed for solving the puzzle and updating the blockchain is cut in half. The last halving took place in 2020, when the reward was cut from 12.5 coins to 6.25. After each halving, the carbon emissions required to create one coin is doubled overnight.
Are all cryptocurrencies bad for the environment?
Proof of work is the predominant method of validation, and will most likely remain relevant for the time being. However, not all cryptocurrencies are created through proof of work and so they don’t require the processing power or energy to mine as a coin from proof of work.
Blockchains still need to be validated, but recent validation methods have emerged that provide comparable levels of security through alternate methods of verification.
Proof of stake: In this validation mechanism, miners use the cryptocurrency they already own to gain access to mining rights proportional to the coins they already own. They lock their coins away to create a validator node, which can verify a transaction. When a block of new information needs to be approved, the blockchain chooses a random validator node. If the validator verifies the block, they can add it to the blockchain. If they try to add a block of inaccurate information, they lose some of the coins they put at stake.
Though this system doesn’t have the energy usage issues that plague proof of work, it has been criticized for systemic inequities, as the people with the most coins get the most returns. It’s worth noting that it is also expensive to purchase the computing power needed to mine through proof of work. There are already more than 200 coins that operate through proof of stake, the largest of which is Solana, with a
of $28.39 billion.
Proof of burn: Proof of burn is a mix of both proof of work and proof of stake. Under proof of burn mechanisms, validators burn an amount of cryptocurrency — which means those coins are permanently removed from circulation. In doing this, validators buy a virtual mining rig which works proportionally to the amount of coins you burn — the more you burn the faster you mine. This then allows you to mine cryptocurrency without the enormous energy expenditures.
This is a relatively new mechanism that was created specifically to address the environmental concerns around proof of work mining. As such, it hasn’t caught on in any significant way. Slimcoin is the only cryptocurrency that uses this mechanism so far.
Proof of capacity: Instead of measuring computational power or stake, proof of capacity uses available storage space on a mining device’s
for validation. Possible solutions to the proof of capacity mining algorithm are stored using whatever empty space is available on a mining device, so the more storage capacity you have, the more solutions you can store, which means there’s a greater chance that you have the correct solution to the algorithm.
A handful of coins use this system including Burst, Chia, and Storj.
Proof of elapsed time: Proof of elapsed time is another consensus mechanism, though it is primarily used in permissioned blockchains, which are blockchains that require access to view as opposed to public blockchains. This uses a lottery style to determine who goes to update the blockchain, so it’s fairly random.
The future of crypto and the environment
Despite advancements in alternative sources for generating cryptocurrency, proof of work mining doesn’t show any signs of slowing down. In January of 2020, Bitcoin’s monthly consumption was an estimated 6.07 TWh, which rose to 8.92 TWh in January of 2021. As of January 2022, usage was at 10.95 TWh.
For proof of work mining, the question becomes finding a sustainable way to supply the electricity needed for the computing power that these miners use. This means moving mining operations out of the US and towards countries with more ways to generate green energy. “When [mining] got banned in China, people moved all the way to the US,” Theomou says. “So it’s concentrated. We need to have Bitcoin mining going on in many places in the world.”
However, sections of the cryptocurrency industry are moving away from proof of work out of concern for the environment. Ethereum, the second most traded cryptocurrency on the market, is working to move away from proof of work and towards proof of stake.
On individual levels, there have also been efforts to reduce carbon emissions. The Crypto Climate Accords have garnered 250 signatures from individuals and companies. These signatories are committing themselves to reducing their carbon emissions to net-zero by 2030 and eventually decarbonizing the entire cryptocurrency industry by 2040.
Yet Theomou says that the cryptocurrency industry will never completely shift its focus away from Bitcoin because it’s highly unlikely that Bitcoin will undergo any drastic changes. “It’s only as secure as it is because it hasn’t…