Cryptocurrency and Climate Change: How bad is crypto for the environment?

30 Nov, 2018
by David Robb
News
Cryptocurrency and Climate Change: How bad is crypto for the environment?

Of the many criticisms that are levelled at Bitcoin and other cryptocurrencies, the negative impact that they have on the environment is one of the tougher ones to dismiss. Let's take a look at the facts surrounding crypto's contribution to climate change, and figure out how the crypto community should react.

It is undeniable that the process of mining cryptocurrencies that are based on a Proof-of-Work system consumes a huge amount of energy. According to recent estimates, Bitcoin miners alone use around 61.5 TWh of electricity per year. This is roughly the same annual usage as the entire nation of Switzerland, or enough to power around 5.6 million homes in the U.S.

Read more: Recent study finds that Bitcoin mining consumes almost as much energy as Denmark

It's true that not all mining hardware is the same, and some rigs may consume more energy than others. However, even if every BTC miner used Bitmain's Antimer S9 (one of the more popular products on the market), the total amount of electricity they used would still be around 49 TWh.

Image from Gyazo

These figures may look bad, but they don't mean a whole lot without comparing them to equivalent ones for competing industries. And, as many crypto enthusiasts repeatedly point out, the global finance industry consumes much more energy than this. The annual estimated electricity consumption for banking worldwide is around 100 TWh, and the way things stand, Bitcoin's carbon emissions are just 0.2 percent of those attributed to conventional financial institutions.

However, the difference in scale between the two industries is significant. On a busy day, Bitcoin will handle around 200,000 transactions, while the total non-cash transactions processed in a typical day is around 1.37 billion. Adjusting for this, cryptocurrencies are a lot more energy-intensive. A single BTC transaction uses an average of 60 kWh of energy, whereas a network like VISA could process over 400,000 payments with this same amount. Granted, this last comparison doesn't take into account the everyday operating costs of VISA's infrastructure, nor for the increased BTC capacity brought about by implementation of SegWit and other technologies, but the differences between the two networks would still probably be extreme.

So the energy consumption levels are high, but how much is that contributing to the pollution of the environment? That depends on the type of power that is being used by miners. Although China and its coal-powered electricity dominates the crypto mining industry, an increasing number of crypto mining operations have been setting up in places like Iceland, where geothermal energy is easy to access. This type of clean, renewable energy is much less harmful for the planet and its atmosphere than fossil fuels.

Read more: Update: Bitcoin is not going to destroy the environment, despite warnings; Crypto mining company may have found a renewable way to mine Bitcoin

However, the biggest difference in carbon footprint between two types of energy source (coal power compared with hydroelectricity), is just 250 times. As crypto mining uses thousands of times more power than other comparable industries, even an industry-wide shift to the cleanest possible energy would barely make a dent.

Bitmain, Nvidia, and other manufacturers of the ASIC chips that crypto miners use are continually making efforts to improve the efficiency of their rigs, and this will lead to progressively less energy consumption per unit electricity in future. However, studies have shown that this has little to no impact on total energy consumption. Crypto is an economy of scale, so as long as mining remains profitable, more efficient hardware will just lead to even more electricity usage for the same amount of energy.

One paper has predicted that, if its growth remains constant, Bitcoin mining alone could account for an increase of 2 degrees Celsius in global temperatures within three decades. Of course, established institutions will always be looking for reasons to take down potentially disruptive technologies, but that doesn't mean they're necessarily wrong.

Read more: If Bitcoin is successful it could make Paris climate goals impossible to reach

Pressure is mounting on governments and businesses across the world to cut down on their energy usage and curb their carbon emissions, as predictions about how climate change is going to affect the planet and how soon it will happen become increasingly dire. A relatively new industry that consumes such a large amount of power will be increasingly hard to defend, as much as some may try.

However, assessing crypto as wasteful is relative to how much value people see in crypto. This outcome is far from likely, but as an entirely new approach to global finance and social organization grows in popularity, it's not impossible that it will start to show enough potential and have the kind of positive impact that could eventually change people's attitudes.

Finally, an assumption that we have made throughout this article is that a Proof-of-Work mining protocol is the best way to operate a secure cryptocurrency. While this may be true for now, and most of the major crypto networks rely on mining to verify their transactions, many in the community are looking at alternative solutions.

Image from Gyazo

Proof-of-stake (PoS) is, basically, a consensus system whereby holders of a particular cryptocurrency are slightly rewarded for putting up their tokens to be staked and maintaining a node, and hugely disincentivized to reverse transactions or tamper with the blockchain.

Read more: Ethereum's new 1000x Serenity upgrade coming soon, says Vitalik

A PoS protocol is how the newer top-10 crypto token EOS operates, and the development team behind Ethereum (ETH) is also likely to pivot its own blockchain to a PoS system sometime soon. While no PoS system has effectively proven itself yet, its fundamental logic is sound, and it could do away almost entirely with the excessive energy consumption that makes Bitcoin and other cryptos such an unsustainable prospect for the future of our planet.

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