- Bitcoin and other Proof-of-Work cryptocurrencies require large amounts of energy to perform the computations associated with crypto mining.
- This leads to considerable carbon emissions and electronic waste.
- Many cryptocurrencies are shifting to sustainable, energy efficient alternatives.
- All organizations in the crypto ecosystem have a role to play to reduce emissions.
The rise of blockchain technology has been nothing short of meteoric. In the span of just a few years, it’s gone from being an unknown concept to one of the most talked-about topics in the world. However, the blockchain ecosystem is often tainted by its reputation for being harmful to the environment. Many see it as an unsustainable alternative to the traditional system. The reality is more nuanced, and there is an ongoing global effort to reduce the carbon footprint of crypto, as seen with the recent Ethereum merge. In fact, the crypto ecosystem could represent a negligible global carbon footprint in the future.
The ecosystem is still exploring the applicability of blockchain technology in a number of different ways, with new potential use cases popping up all the time. One area that has seen a fair amount of discussion lately is the role of blockchain in sustainability. With the UN Sustainable Development Goals (SDGs) set to guide global sustainability efforts over the next decade, it’s important to consider how different technologies can support these goals. We know we can use blockchain to track environmental impact, enable transparency and accountability, and drive sustainable behavior change. So, is blockchain compatible with sustainability? Blockchain technology has the potential to support sustainable development, but it faces challenges that need to be addressed for this to become a reality.
In this article, we will explore the negative environmental impact of some cryptocurrencies, why it can be more complicated than it seems, and some of the already existing solutions to its sustainability problem.
Why cryptocurrencies require energy
When we talk about the energy consumption of cryptocurrencies, the main factor is the underlying consensus protocol – what makes the network keep running. Some cryptocurrencies require “miners” to function: machines performing intensive computation work and consuming huge amounts of energy while doing so.
The most famous example is Bitcoin. Since its inception, Bitcoin has operated through its consensus algorithm called “Proof-of-Work”. This work consists of intensive computations performed by specialized devices (ASICs) that allow miners to validate transactions and be rewarded with Bitcoin. The machines that perform this work consume huge amounts of energy, which can come from different sources, but in reality often comes from fossil fuels.
The process of mining also releases new coins into circulation, which miners can use to buy goods and services or traded for other currencies. Of course, the overall historic uptrend in the price of Bitcoin makes it more and more profitable to mine and provides a growing incentive for miners all over the world. As mining can provide a solid stream of revenue, people are willing to run power-hungry machines to get a piece of it. The more miners there are, the more difficult it becomes to find blocks, and thus the more energy that is required globally.
As the popularity of cryptocurrencies has grown in recent years, so has the amount of energy used to mine them. In fact, experts estimate Bitcoin to consume roughly 0.5% of all energy consumption worldwide, in a recent study by the New York Times.
Environmental impact of cryptocurrency mining
and we can only work with estimates. Not only does one need to know the power requirement of the Bitcoin network, but one also need to know where this power is coming from. The location of miners is a key ingredient to know how dirty or how clean the power is that they are using.
That being said, the environmental impacts of Bitcoin mining are significant and well-documented. This industry has a large carbon footprint and is contributing to climate change.
There are two main factors to this environmental impact:
- This high level of energy consumption is due to the fact that mining cryptocurrencies requires a lot of computing power, which in turn requires a lot of electricity.
- The hardware used to mine can quickly get obsolete and results in lots of electronical waste.
According to the Bitcoin Energy Consumption Index, the process of mining Bitcoin uses more energy than all of Norway. The power consumption attributed to Bitcoin miners is currently around 130TWh per year. This number fluctuates and was higher a few months ago: it reached 204TWh at its peak and has been on a significant overall uptrend since 2008. The carbon footprint of one bitcoin transaction has been estimated as equivalent to that of several hundreds of thousands of Visa transactions.
Furthermore, miners are constantly needing to upgrade their equipment in order to stay ahead of the competition and earn rewards. The competition for rewards also leads to miners using whatever energy source is cheapest at the time, which often means coal-fired power plants.
Keep in mind these figures only represent Bitcoin, and many other cryptocurrencies use a Proof-of-Work algorithm – so the actual overall power consumption of the ecosystem is higher than that.
While some argue that this isn’t a sustainable way to use resources, others believe that cryptocurrency mining could actually help reduce our reliance on fossil fuels. This is because many miners set up operations in countries with excess renewable energy, such as Russia and Iceland. Some go even further and say that Bitcoin mining could promote the use of renewables on a global scale.
Anyway, there are indeed some steps that miners can take to make cryptocurrency mining more sustainable. They can mitigate the environmental impacts of cryptocurrency mining by using renewable energy sources, such as natural gas or hydropower. The mining hardware can also be improved in terms of energy efficiency.
However, it is important to note that even if all cryptocurrency mining was powered by renewable energy, it would still consume huge amounts of electricity and be a contributor to global carbon emissions. In general, using renewable energy to power Bitcoin mining means it won’t be available to power a home, a factory, or an electric car.
It is clear that we cannot consider the current state of cryptocurrency mining to be sustainable. While it is possible for crypto mining to mitigate most of its carbon footprint if it entirely moves away from fossil fuels and towards renewables, it still poses problems.
Can cryptocurrencies use less energy?
Yes, cryptocurrencies can use less energy. In fact, some cryptocurrencies are designed to use very little energy. The way they do it is by changing the consensus algorithm, which can greatly reduce the carbon footprint of mining or eliminate mining altogether.
For instance, Ethereum recently undertook a major network upgrade to Ethereum 2.0. The goal was to reduce most of the energy consumption by shifting the network from Proof-of-Work to Proof-of-Stake, effectively eliminating energy-consuming mining hardware and replacing it by “validators”. This upgrade reduced the energy consumption of Ethereum by 99.95%. Ethereum running on Proof-of-Stake therefore consumes around 2.62 megawatt globally, which is comparable to a small American town of around 2100 homes.
Another example would be Chia, a cryptocurrency launched in 2021 that uses a Proof-of-Space-and-Time (PoST) algorithm. PoST is designed to be 500x more energy efficient than Bitcoin by replacing ASIC miners with idle HDDs.
And there are many more innovations in this space, with other sustainable algorithms such as Proof-of-Stake variants, DAGs, the XRP Ledger, Proof-of-Capacity and many more. Overall, the trend is moving towards more environmentally friendly consensus protocols. The ranks of the proponents of Proof-of-Work are growing thinner in proportion. There is also the rise of “green cryptocurrencies” which are tokens that have been specifically designed to address environmental issues. For example, some green cryptocurrencies can be used to purchase carbon credits, which help offset carbon emissions. Others may be used to finance green energy projects such as solar and wind farms. Green cryptocurrencies are important because they provide a way for people to invest in sustainability without having to rely on traditional financial institutions.
What are some sustainable solutions?
There is no one-size-fits-all answer to this question, as the sustainability of any given blockchain solution depends on a number of factors, including the technology, the use cases, and some aspects of the governance model. However, there are a few general principles that can guide developers and organizations in making their blockchain solutions more sustainable:
- Use less energy intensive cryptocurrencies and prefer renewable energy sources. This not only reduces your carbon footprint, but also helps to ensure that your solution will continue to function even if there are disruptions to the traditional energy supply.
- Use blockchain to power sustainable applications. For example, we can use a token to reward people for participating in sustainability projects, or a blockchain can track carbon emissions. This provides an incentive for people to take part in activities that help the environment. While not all cryptocurrencies are currently sustainable, it is possible for them to be used in ways that support sustainability initiatives.
- Offset your carbon footprint. If done appropriately, your blockchain company can even reach net positive. For instance, Mintera pledges to donate 50% of its profits to environmental organizations.
- Encourage responsible use. Finally, you should encourage responsible use of your blockchain solution. This means educating users on how to best utilize the technology in order to minimize resource consumption and maximize efficiency.
Takeaways
As blockchain technology becomes more popular and widespread, it’s important to consider its sustainability implications. The energy consumption of networks like Bitcoin can be justifiably frightening.
However, blockchain technology is here to stay. Most players are aware of the ecological problem posed by some blockchains and are actively trying to fix them. This ongoing widespread effort to reduce the huge energy consumption of crypto networks is done either through the use renewable energy sources, or through technological innovations to make consensus protocols less energy intensive.
Today, there are already many solutions for individuals who want to be involved in the cryptocurrency space while keeping a very limited carbon footprint, or even a net-positive environmental impact. We expect this trend to grow in the future.
