As evangelists and critics debate whether cryptocurrency represents the future of money or is nothing more than a giant Ponzi scheme and a haven for ransomware, drug dealers, and terrorists, a basic truth is often overlooked: crypto devours massive amounts of energy.
According to Digiconomist, a website that tracks bitcoin and other cryptocurrencies, just over 0.5% of global energy goes to mining these digital currencies. It is on its way to equalizing the total power consumed by data centers globally.
The UK’s Cambridge Center for Alternative Finance (CCAF) reports that current cryptocurrencies consume around 118.79 TWh per year – higher than many countries around the world, including the likes of Argentina, the Netherlands, Finland and New Zealand.
However, the problem is not just that cryptocurrency consumes a lot of energy – it is the type of energy that it consumes. Worldwide, previously closed coal and fossil fuel facilities have reopened to accommodate these mining operations.
“The carbon footprint that cryptography is generating is massive and continues to grow,” says Camilio Mora, professor of data analytics at the University of Hawaii. “It’s a huge environmental problem.”
Cryptocurrency mining works on a straightforward principle. Regardless of the type of cryptocurrency – Bitcoin, Ethereum or Dogecoin, for example – a miner uses a computer to solve very complex mathematical puzzles. When a miner cracks the code on the blockchain, a digital currency is minted. As of early November, 1 Bitcoin is worth about $61,300.
Mining systems rely on specialized processors — these typically consist of application-specific integrated circuits (ASICs), GPUs or cloud mining frameworks — to power the puzzles of the blockchain. “These are not typical desktop computers. They are specialized machines that consume a tremendous amount of electricity,” says Chris Pronk, assistant professor at the University of Houston.
Adding to the energy consumption problem is the fact that participants compete within a winner-takes-all model. Greater processing power translates to higher odds of being the first to get the limited number of coins available. CCAF says that it takes about 150,000 kilowatt-hours of electricity to unlock one bitcoin. Energy is equivalent to powering about 170 homes in the United States over the course of one month.
Today, crypto companies operate huge banks of these specialized computers. Mora and a group of researchers at the University of Hawaii found that at the current rate, bitcoin emissions alone could drive global warming above 2°C. “They play a fundamental role in accelerating climate change,” he warns.
Some, like Alex de Vries, founder of the Digiconomist, argue that crypto mining is already negating years of progress in reducing greenhouse emissions. There is strong evidence to support this idea. A group from the University of California, Berkeley, reports that cryptography is primarily based on fossil fuels, with 48% of the energy derived from coal.
In fact, coal and gas power plants are reopening all over the world. For example, in Seneca, New York, a private investment firm converted a previously closed coal facility to natural gas in 2017. It stated that its intent was to power the grid — even though there was no electricity shortage in the area. Today, it runs thousands of bitcoin mining operations on the facility’s supercomputers.
Greenidge Generation generated electricity with a mining capacity of 19 megawatts in March 2021. However, the capacity is expected to quadruple by the end of 2022. In addition, the company is drawing water from Seneca Lake to cool the data center but returning it at a warmer temperature. However, the company states that the project does not harm the environment and is 100% carbon-free.
Another problem – which is often overlooked – is the carbon embedded in computers used in cryptography. Manufacturing and transporting these devices requires large amounts of energy. Additionally, their carbon footprint extends to the mining and processing of rare earth materials but also to the e-waste they generate. Some estimates go as high as 135 grams per crypto transaction, roughly equivalent to an iPhone.
It should come as no surprise, then, that there is a growing backlash against cryptocurrencies — even with Wall Street and investment firms joining the crypto party. “One of the problems is that it is not clear that bitcoin mining contributes to anything important to society,” says Pronk. “It consumes huge amounts of energy and makes a few people rich, but it does not create meaningful jobs or societal gains.”
The coding picture continues to shift. In September 2021, China banned cryptocurrencies as well as all mining operations. China was the largest cryptocurrency miner – with a handful of companies working in the field. The Chinese government cited a lack of transparency and anonymity in cryptocurrencies as the main reasons for the ban.
Immediately, many miners began to move their operations outside of China, and now the United States has emerged as the largest country in the world in the field of cryptocurrency trading. But Mora says operations are also thriving in developing countries with few environmental controls and near-zero regulation.
While cryptocurrencies can be conceivable anywhere – including near sources of sustainable energy such as a wind farm or hydroelectric facility – this is usually not the case. “There is a clear pattern of pairing crypto with coal,” he says.
Meanwhile, the cryptocurrency industry says it is taking big steps to reduce the impact of cryptocurrencies and introduce green mining methods. This includes computers and systems that easily connect to wind, solar, hydroelectric, and other renewable energy components—and use advanced battery technology.
New energy models are also emerging. For example, in Texas, a demand response model allows cryptocurrency subscribers to withdraw electricity under normal conditions with mining computers turned off and receive rebates during peak demand periods. Proponents say this makes it possible to use less electricity and generate bitcoin at around $2,000 per coin, versus a typical figure of $11,000.
Some cryptocurrencies, the open source blockchain Ethereum being an example, are also building mining frameworks that require lower levels of power to mint coins. In fact, Ethereum itself is now considered a greener alternative.
However, the problem of energy consumption and social and political undertones are not likely to go away any time soon. “The social costs of cryptocurrencies and crypto are something that we need to pay more attention to. It is not clear if cryptocurrency operators will find ways to make their operations truly green,” concludes Mora.