Cryptocurrencies have come a long way since their inception in the shadows of the financial world. While the conventional financial sector initially scorned digital currencies as tools for crooks and speculators, the industry has made great strides toward establishing itself as a genuine and (possibly) world-changing space.
Although the price of bitcoin (BTC) and ether (ETH) has skyrocketed, there are still concerns about the long-term effects of widespread cryptocurrency use. Many sceptics and environmentalists, in particular, have expressed concern about cryptocurrency mining’s energy usage, which could result in increasing carbon emissions and climate change.
- Due to the computations required for mining, Bitcoin and other proof-of-work cryptocurrencies consume a lot of energy. According to the latest estimations, the bitcoin network consumes as much energy as Argentina does in a year.
- China, which generates the majority of its energy from coal, is home to 65 percent of bitcoin miners.
- Some proponents claim that renewable energy supplies up to 74% of bitcoin’s energy demands, albeit these estimates are debatable.
- Every year, the bitcoin network generates 11.5 kilotons of e-waste.
- Not all cryptocurrencies have a negative influence on the environment. Many of them do not engage in any form of mining at all.
Why Mining Requires Energy
The competitive nature of proof-of-work blockchains accounts for these exorbitant energy expenditures. Rather than keeping account balances in a central database, bitcoin transactions are recorded by a distributed network of miners who are compensated for their efforts through block rewards. These specialised computers are in a race to record new blocks, which can only be made by solving cryptographic puzzles.
Because it does not rely on any trusted intermediary or single point of failure, cryptocurrency supporters say it has significant advantages over centralised currencies. The mining riddles, on the other hand, necessitate a large number of energy-intensive calculations.
According to the BBC in 2021, Bitcoin, the most well-known cryptocurrency network, consumes 121 Terawatt-hours of electricity annually, which is more than Argentina’s entire population.
Mining becomes less efficient as the price of bitcoin rises, which is a major source of concern among environmentalists. The mathematical challenges required to construct blocks become increasingly difficult as the price of bitcoin rises, but transaction throughput remains constant. This means that in order to handle the same amount of transactions, the network will need more computational power and energy over time.
Fossil Fuels and Digital Currencies
All of this has combined to create a relationship between cryptocurrency and fossil fuels that many investors have yet to recognise. According to University of Cambridge academics, roughly 65 percent of bitcoin mining takes place in China, a country where coal is used to generate the majority of its electricity.
Coal and other fossil fuels are currently a major source of electricity for bitcoin mining and other sectors throughout the world. However, due to the carbon dioxide produced by the process, coal burning is a substantial contributor to climate change. Bitcoin mining emits around 35.95 million tonnes of carbon dioxide per year, according to a report by CNBC.
Mining is defended by cryptocurrency advocates.
Supporters have minimised cryptocurrency’s energy use, noting that mining companies tend to cluster around places with abundant renewable energy. According to a 2019 report by CoinShares, a pro-cryptocurrency research organisation, bitcoin mining consumes 74.1 percent of its electricity from renewable sources, making it “more renewables-driven than almost every other large-scale enterprise in the world.”
These assertions are based on the fact that bitcoin miners aren’t geographically bound, allowing them to wander about in search of cheap electricity. According to CoinDesk, several oil corporations are looking at using gas flares to power mining machines, which would otherwise be wasted energy. Some Chinese mining companies move from province to province in pursuit of the cheapest energy, hence helping local renewable energy sources.
Bitcoin’s renewable energy usage calculations are contentious and sometimes challenged. According to a survey from the Cambridge Center for Alternative Finance, renewable energy accounts for only 39% of bitcoin mining. The network is a net contributor to carbon emissions, even with the most optimistic forecasts of renewable energy utilisation.
Other Cryptocurrency Mining Environmental Consequences
Cryptocurrency mining not only consumes a lot of energy, but it also generates a lot of electronic waste as technology becomes obsolete. This is especially true for Application-Specific Integrated Circuits, or ASICs, which are specialised hardware used to mine the most popular cryptocurrencies.
These circuits, unlike other computer hardware, cannot be used, and thus quickly become obsolete. Every year, the bitcoin network generates between eight and twelve thousand tonnes of electronic garbage, according to Digiconomist.
Cryptocurrencies That Do Not Require Mining
It’s also worth noting that a huge percentage of cryptocurrencies have very little impact on the environment. Proof-of-stake blockchains, such as EOS and Cardano, do not require mining, allowing transactions to be completed with the same amount of energy as a traditional computer network.
Although this strategy has evident advantages over mining, switching to a new consensus method is challenging for an established network. According to CoinDesk, Ethereum is slated to upgrade to a proof-of-stake blockchain, but the idea has been met with opposition from miners.