Cryptocurrencies are said to offer a bright future for digital transactions, but do they offer a green future for the environment?
It’s likely that you’ve seen a couple of headlines comparing the energy use of certain cryptocurrencies, such as Bitcoin, with small to medium sized countries. Surely this means that cryptocurrencies are bad for the environment?
According to a certain Mr Musk, cryptocurrencies like Bitcoin are a deep concern for carbon emissions and energy use. Then again, he decided this after he made a tidy $100 million in profit from his public crypto investment.
There’s no doubt that certain cryptocurrencies use a lot of energy. However, it doesn’t have to be this way. It’s possible for more eco-friendly cryptocurrencies to exist that don’t have a significant impact on the environment.
This blog will take a look at:
- How cryptocurrency affects the environment
- How much energy it uses and why
- Where this energy is being used across the world and how this fits in with its environmental impact
- Can cryptocurrencies bring positive change
If you find cryptocurrency too complicated, stick with me. I promise to make this topic as accessible and as simple to understand as possible. By the end, I’m sure you’ll have a much better understanding.
Quick overview: What are cryptocurrencies?
Cryptocurrencies are digital currencies built specifically to cut out the middle man – aka the traditional banking system.
Cryptocurrencies achieve this through the blockchain technology they are built on. This technology creates a large network of computers, which together act as a global record for cryptocurrency transactions. This cannot be altered. Because of this, cryptocurrencies are secure and completely decentralised.
Instead of physical cash, owners of cryptocurrency get a digital token or ‘coin’ that is stored in a personal digital wallet. The value of a coin is determined purely by the market and the laws of supply and demand.
By far the most well-known and valuable cryptocurrency is Bitcoin. Although it has become somewhat synonymous with cryptocurrency for the average person on the street, there are now over 4,000 different types of cryptocurrencies in existence. They are not all built the same, which means they have differing impacts on the environment.
How does cryptocurrency affect the environment?
If cryptocurrencies are purely digital, how can they impact the environment?
Although the digital world is distinct from the physical world, everything digital has to be created somewhere. Instead of trees, water and buildings, the digital world is created from computer chips, servers and connected networks.
To run a cryptocurrency, you need energy in the form of electricity.
A cryptocurrency network can use any source of electricity – whether this is from a coal powered plant or solar farm. The energy cryptocurrency taps into depends on where the powerful crypto computers are located in the world. The latest research suggests that 39% of electricity used by the Bitcoin network is renewable.
Alongside energy usage, there’s also a second, less spoken about problem with cryptocurrencies. This is the electronic waste that’s produced, also known as e-waste.
As the cryptocurrency market has grown, more power-hungry tech equipment has been developed to process it all. Because of the amount of work these specialist crypto processers are doing, they have a rough shelf-life of 18 months before they need to be replaced.
As you can imagine, this short life means large amounts of e-waste is produced. According to Digiconomist, over 6,000 tonnes of e-waste is estimated to be produced annually. This becomes an even bigger problem when only 20% of e-waste is recycled globally.
How does cryptocurrency use energy?
Just like the valuable commodities of gold, silver and diamond need to be mined, so do the coins of many cryptocurrencies.
The big difference is that cryptocurrencies are mined digitally via computers and powered by electricity rather than by workers underground.
In the cryptocurrency world, mining is the process that creates new coins, verifies transactions and maintains the decentralised log. For many cryptos, including Bitcoin, mining is essential.
All of this work requires electrical energy to power the computers and mining equipment.
Some cryptocurrencies can verify transactions and create new coins without mining. A common process for this is called ‘proof of stake’.
Without getting bogged down in the details, proof of stake is said to be more energy efficient and can be run off a regular laptop. Any eco-friendly cryptocurrency will be using a method such as this, rather than mining.
Why does cryptocurrency require so much energy?
Just a few years ago, you would be able to use the processing power of a regular computer to mine coins. Now you need specialist equipment and so-called ‘mining rigs’ with many, many times the processing power.
This new type of mining equipment is incredibly energy intensive. At the risk of losing you, here’s why.
To mine a cryptocurrency coin, the ‘miner’ has to be the first to guess, or come closest to guessing, a target 64-digit hexadecimal number, called a hash. There are trillions of possible combinations for each coin. It would take you a while to do by hand, so miners use computers with an awful lot of processing power to run through the combinations.
Each cryptocurrency has a limited number of coins to be mined. With Bitcoin for example, the maximum number of coins that can be mined is 21 million. This makes it a finite resource, which adds to the supply and demand element.
At the time of writing, 18.7 million coins of Bitcoin have been mined. Not many left to go then?
Correct, but the kicker is that the fewer digital coins there are to mine, the harder it becomes to mine them. Just like if there was one nugget of gold left to be found, it would take a long time to find it.
Considering the environment, as the process of mining becomes more difficult, it takes much more computer power and energy to unlock the coins.
Generally speaking, as energy requirements increase, so do carbon emissions. This is because the global energy mix is still largely powered by fossil fuels and not renewable energy sources.
As Bitcoin becomes more scarce and harder to mine, energy use and the amount of e-waste are going to increase. The last Bitcoin isn’t expected to be mined until 2140.
How much energy does cryptocurrency use?
Ok, hopefully you’ve got a slightly clearer idea of what cryptocurrency is and how it uses energy.
The next question is how much energy does cryptocurrency actually use?
As cryptocurrency is mined all over the world, there’s no precise answer to this. We have to rely on energy consumption estimates. Two of the most well-known estimates come from the Cambridge Bitcoin Energy Consumption Index (CBECI) and Digiconomist’s Energy Consumption Index.
There’s a slight flaw in estimating the energy use of all cryptocurrencies as the data just isn’t available. Instead we’ll look at two biggest cryptocurrencies who use the biggest energy percentage, Bitcoin and Ethereum.
Bitcoin energy consumption estimates
Digiconomist estimates Bitcoin to be currently using 135 TWh of electrical energy a year.
CBECI estimates that Bitcoins energy use is 71 TWh/year.
There’s a big difference here, largely due to the massive surge we saw earlier in the year, which have put annual estimates a bit all over.
Ethereum energy consumption estimates
The Digiconomist Energy Consumption Index estimates Ethereum to be currently using 57 TWh of electrical energy a year.
This means total cryptocurrency energy use is at least 128 TWh/year but could be as high as 192 TWh annually.
Take this figure with a little pinch of salt, but it’s clear the energy use of cryptocurrency is very high. With 4,000 cryptos in existence, the energy use is likely to be higher, although most will be negligible when compared to these two cryptocurrency giants.
It’s also worth noting that the energy use of cryptocurrency was much lower just a few years ago. For example, before 2018 the estimates for Bitcoin were under 20 TWh/year, whereas Ethereum was under 10 TWh/year.
As mentioned, as the coins become more scarce, the energy required to mine them intensifies.
How does the cryptocurrency energy use compare to real world examples?
Let’s take the current estimate of cryptocurrency energy use of somewhere between 128-192TWh and compare it to more familiar examples.
The figures for the examples below come from the CBECI and give TWh energy use per year.
- Global air conditioning: 2,199 TWh
- Global iron and steel production: 1,233 TWh
- Global paper and pulp production: 586 TWh
- Global cement production: 384 TWh
- Gold mining: 131 TWh
- Cryptocurrency 2021 energy estimate: 128-192 TWh
- US residential fridges and freezers: 104 TWh
- TV use in the US: 60 TWh
Which countries mine the most cryptocurrency?
As cryptocurrencies are global and decentralised, mining can take place anywhere across the world.
For crypto miners, it therefore makes sense to ply their trade wherever energy is the cheapest and most reliable.
The data on the whole cryptocurrency mining scene is very limited, so we’ll mainly look at Bitcoin mining as a proxy for the whole.
The top countries where Bitcoin is mined are:
- China – 46% of all mining. This was around 75% in September 2019 but this has dropped since the Chinese government crackdown in 2021. This has caused many Chinese miners to cross the border into Kazakhstan (see below)
- USA – 16.8%
- Kazakhstan – 8.2%
- Russia – 6.8%
- Iran 4.6%
Other notable Bitcoin mining countries with between 2 and 4% of the total mining include: Malaysia, Ireland, Canada and Germany.
How does this relate to the environment?
Where cryptocurrency is digitally mined plays a key role in what type of energy is used.
There’s nothing stopping cryptos using clean, renewable energy, it all depends on where the mining rigs are located.
For example, in China which has the biggest share of mining, two thirds of the country’s energy comes from coal.
If you’re mining crypto in Kazakhstan, you’re more likely to be powered by fossil fuels than renewable energy.
However, if you’re a crypto miner in Iceland, it’s likely you’ll be using hydroelectricity and geothermal energy. Being located in a colder country is also great for cooling the mining computer equipment, which get very hot and take a lot of energy to regulate.
Can cryptocurrency be good for the environment?
So far, it’s looking like cryptocurrencies are pretty bad for the environment. Is there a positive side?
Broadly speaking, it’s perhaps not cryptocurrencies that can be good for the environment, but the blockchain technology they are built on.
The United Nations believes that blockchain in particular can play a key role in looking after the environment, fighting the climate crisis and sustainable development.
How exactly can it does this?
One of the main benefits of cryptocurrencies is that all transaction records are highly transparent. The technology ensures that finances can’t be corrupted and tampered with. This is a major point.
With traditional currency, trust is put into institutions that all money has to go through. With cryptocurrency, trust is made implicit through the secured technology.
It’s believed that blockchain can help climate action in three main areas:
- Climate finance
- Clean energy markets
For example, the World Food Programme has successfully delivered humanitarian finance via blockchain to recipients in Pakistan and Jordan. Every transaction was recorded and everyone received money securely.
Blockchain can also be used to support environmental reporting and monitoring. With increased transparency and traceability, we’ll see an increase in business sustainability over the long term.
One company called CarbonX in Canada have used cryptocurrency to incentivise organisations in reducing their carbon emissions through better greenhouse gas reporting.
With blockchain technology, there’s nowhere for corruption to hide. This could benefit nature and stop a lot of illegal environmental activity, such as illegal fishing and animal trading.
However, there’s still the question of a major e-waste issue. Until electronic waste becomes easier to recycle across the world, cryptocurrencies, specifically the mining of them, are going to create a lot of waste that is bad for the environment.
Do clean eco friendly cryptocurrencies exist?
Yes, cleaner and greener cryptocurrencies are being created.
As you’ve read in the sections above, the most energy intensive part of cryptocurrency is the mining of it. However, not all cryptocurrencies needs to be mined.
Without energy intensive mining, the computer processing power required comes down. Less energy, less emissions.
There are a number of cryptocurrencies that have been built to be more efficient and eco friendly:
- Nano – doesn’t rely on mining. It uses a different protocol to secure its network which promises much less energy use and increased efficiency. Nano describes itself as ‘sustainable digital money’.
- Cardano – uses a different technology called proof-of-stake. Cardano wants to create a fairer, more sustainable future and claims to be the most environmentally sustainable blockchain out there.
There’s also now such thing as the Crypto Climate Accord (CCA).
Inspired by the Paris Climate Agreement, the CCA is a private-sector led initiative who want to decarbonise the cryptocurrency industry.
Signatories to the CCA publicly commit to going green and achieving net-zero carbon emissions by 2030.
So, is cryptocurrency bad for the environment or good?
There’s a lot to take in but the main question remains: is cryptocurrency bad for the environment?
The answer is currently yes. Most cryptocurrencies are net contributors to carbon emissions.
The main reasons that the most popular cryptocurrencies are bad for the environment are:
- The large energy usage associated with crypto mining
- The quantities of unrecyclable e-waste it produces
The main cog to all of this is the mining. To be environmentally friendly, cryptocurrencies will have to replace the energy intensive mining process.
There are alternative mechanisms to mining already out there and some cryptocurrencies are gearing up for greener change. This shows that it’s not cryptocurrencies per se that are bad for the environment, but the mechanisms in how they are run.
For example, Ethereum who run the second most popular cryptocurrency on the planet, are readying themselves up to switch the way they verify transactions. This switch will make their processes more environmentally friendly and, if Ethereum’s calculations are correct, will reduce the energy cost of a transaction by 99%.
If we zoom out and take a look at the wider picture, it comes back to the way in which electrical energy is generated.
Although the trend is improving, the majority of the world is still powered by fossil fuels. This is particularly true for the countries where cryptocurrency mining is most popular.
However, cryptocurrencies will use whatever energy is readily available. The quicker countries can adjust their energy policies and transition to renewable energy the better.
This move will then reduce cryptocurrencies impact on the environment and the technology behind them can be used to create beneficial change within and around the environment.