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03.08.2022

Is Cryptocurrency bad for the environment?

Mining Bitcoin while the earth burns - how cryptocurrency can be bad for the environment.

Thousands of computers sit running all day, every day. They have just one job – mining Bitcoin. 

‘Mining’ Bitcoin and other cryptocurrencies basically means that a high powered computer is used to verify transactions of that currency, much like a regular bank would verify the legitimacy of transactions themselves. Cryptocurrency runs on a decentralised network called a blockchain (basically a big list showing how much bitcoin, or other cryptocurrency people have exchanged) with many computers being used to verify transactions. Data on the blockchain is encrypted for security reasons, hence the name ‘cryptocurrency’. The more computers participating in the blockchain, the more secure this network is, reducing the risk of fraud.

After the economic crash of 2008, people were growing ever more distrustful of banks. An academic paper published by one Satoshi Nakamoto (thought to be a pseudonym for a person or group of people) proposed that a decentralised currency could allow payments to be sent without involving a third party, i.e. a bank or financial institution. Nakamoto launched the Bitcoin network in 2009. Bitcoin was a way of sending money to other people without having to rely on the centralised control of a bank and the oversight of the government. 

Bitcoin may be one of the most popular cryptocurrencies, but there are over 4000 other cryptocurrencies in use today including Ethereum, Dogecoin, Litecoin and more. For the purposes of this article we will focus on the well-studied effects of Bitcoin, but the environmental impact of other virtual currencies cannot be ignored.

What is the carbon footprint of Bitcoin?

Research by the University of Cambridge indicates that Bitcoin mining burns through 85 TWh (Terawatt-hours, or 1 trillion watts per hour) per year, more energy than the entirety of Belgium. This is obviously pretty bad for the environment and has a massive impact on carbon emissions. 

In 2019, Bitcoin was responsible for 22 million metric tons of CO2 emissions, which is comparable to the total emissions of Hamburg or Vienna. It takes around 707 Kwh of energy to verify one Bitcoin transaction, the equivalent of over two months of energy usage by an average UK household.

Why do Bitcoin transactions use so much energy?

“Bitcoin mining is essentially waste by design” 
Alex de Vries, Bitcoin specialist, economist & researcher

You can’t just use any old computer to ‘mine’ for Bitcoin any more, you need a high-powered specially built mining rig, usually with several GPUs, or graphics cards, and a decent power supply that can handle being used all the time. You also need a cooling system to ensure this setup runs efficiently and doesn’t overheat. All of this uses massive amounts of energy, way more than a normal PC, as the mining rigs are used 24/7 to maximise profits. A few Bitcoin mining operations rely on sustainable energy like solar or wind power, although the vast majority just use grid power due to the sheer amount of energy required for mining.

GPUs and other computer components are manufactured using materials that are mined from the earth – primarily silicon, which is fairly plentiful, and also several rare earth elements. These are not necessarily short in supply, but they take a lot of time and energy to extract and process. Their mining and subsequent processing degrades the land and also releases radioactive elements like uranium and thorium into the environment. This is problematic, but it doesn’t stop there – more production of GPUs means more become obsolete or damaged and thrown away – Bitcoin is responsible for an estimated 36 kilotons of e-waste per year – more than the entirety of the Netherlands.

Bitcoin and fossil fuels

Since the Chinese government cracked down on Bitcoin mining in May 2021 and even announced that cryptocurrency transactions were illegal, a lot of crypto mining companies have moved to the States. Fossil fuel power plants in the USA are even getting bought out by Bitcoin miners, as coal and gas can provide a stable and uninterrupted supply of electricity to mining computers. 

The state of Texas is becoming popular as a crypto mining location due to its ability to generate cheap(ish) power from oil, a deregulated power grid, and an overall conservative mindset which is pretty friendly to the idea of mining cryptocurrency. Other countries like Georgia and Kazakhstan whose energy grids are powered almost entirely by fossil fuels, are also getting in on the crypto mining game.

If more electricity produced in general was renewable, then of course crypto mining would be less environmentally damaging, but miners will always go to where energy is the cheapest to reduce their costs. Due to a lot of existing infrastructure designed around coal, oil and gas power plants, these are often the cheapest.

How the crypto industry is improving its carbon footprint

Not all cryptocurrency mining operations are contributing to carbon emissions – some are actively seeking out renewable energy sources, while others are using resources that would otherwise be wasted due to logistical or economic reasons. A report by the University of Cambridge found that 39% of energy used for mining is from a renewable source. With renewable power becoming cheaper all the time, this trend is likely to continue.

Some Texan Bitcoin mining operations use stranded gas that would otherwise be wasted, i.e. if they accidentally uncover a natural gas formation while drilling for oil and discover pockets of methane under the ground, they can use that gas to power a crypto mining setup rather than venting the gas into the atmosphere or lighting it on fire, which is apparently what they normally do (yes, really)

In Scandinavian countries like Norway and Iceland, miners are using hydroelectric and geothermally generated power to run their mining operations, and taking advantage of the naturally cool climate to avoid overheating issues.

Some cryptocurrencies have less of an environmental impact, although often this is due to sheer scale – if they were used as much as Bitcoin, they would produce just as much carbon emissions. Others do not rely on the blockchain and thus use less computing power and energy, e.g. SolarCoin, Hedera Hashgraph and IOTA. Bitcoin is unlikely to stop using the blockchain as it makes a lot of money for a lot of people, and as the biggest cryptocurrency in the world, it continues to have the highest impact. 

However, Ethereum, the second most widely traded cryptocurrency, is moving away from the traditional ‘proof of work’ method of verifying transactions in which miners compete to confirm transactions, and moving towards ‘proof of stake’ which randomly chooses a miner to verify a transaction, thus using less power.

The hardware is improving too – application-specific integrated circuits (ASICs) are often used to mine Bitcoin, which are generally more energy efficient than using GPUs and work faster. However, ASICs cannot be used for all cryptocurrencies, and GPUs can be used for almost all of them, plus other purposes like their original purposes of running video editing software and video games.

The recently implemented Lightning Network makes Bitcoin transactions faster and more efficient, while still allowing people to mine Bitcoin. This reduces the energy expenditure required, the transaction cost to the user, and the carbon footprint of Bitcoin usage. 

It is important to remember that like a lot of things we do every day, regular banking also produces carbon emissions. In fact, each card payment uses around 3.78 grams of CO2. This produces 1 million tonnes of CO2 every year in the UK alone.

While the industry is moving in the right direction, i.e. towards carbon footprint reduction and overall sustainability, it still needs to be closely observed and monitored to ensure these solutions have long-term efficacy.

Sources:

https://digiconomist.net/bitcoin-energy-consumption

https://digiconomist.net/bitcoin-electronic-waste-monitor/

https://www.tum.de/en/about-tum/news/press-releases/details/35499/

https://www.cnbc.com/2021/09/04/bitcoin-miners-oil-and-gas-execs-talk-about-natural-gas-mining.html

https://www.independent.co.uk/climate-change/news/bitcoin-cryptocurrency-bad-for-environment-b2103634.html

https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/3rd-global-cryptoasset-benchmarking-study/

https://ccaf.io/cbeci/index/comparisons

https://www.ovoenergy.com/guides/energy-guides/how-much-electricity-does-a-home-use

https://www.forbes.com/advisor/investing/cryptocurrency/bitcoins-energy-usage-explained/

https://www.bitcoin.com/bitcoin.pdf

https://bitcoinist.com/btc-the-lightning-network-s-energy-consumption-vs-the-world-a-comparison/amp/

https://brc.org.uk/news/csr/making-checkouts-greener-cutting-co2-and-costs/

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