The Environmental Impact of Cryptocurrencies

By Rahul Nanda

Despite the widespread fancy, craving, and popularity of cryptocurrencies such as Bitcoin and Ether, a not-so-well-known detail about their use is their impact on the environment, which can raise great concern on whether their consumption of energy can be tolerated for much longer. But how does a digitally produced token have any impact on the environment? Well, the answer is quite simple once you understand how cryptocurrencies work.

For cryptocurrencies such as Bitcoin, their production is driven by a process called “mining;” no, not literal mining, but rather a virtual process that exemplifies the same qualities of physical mining. To create value, cryptocurrencies usually have a finite number of tokens gained through the process of “mining.” Unlike real money, however, this store of tokens—which for bitcoin is 21 a million—is not held by a central database—as this would defeat the purpose of a secure blockchain. Instead, these virtual currencies are distributed by specialized and powerful networks of computers—or miners—that engage in proof-of-work to solve cryptographic puzzles for block rewards. In simple terms, you can think of this process as computers solving complex computational problems to “dig” for cryptocurrencies and, in turn, receive them as a reward. The only issue in this process is the very nature of the cryptographic puzzles these computers seek to solve. Because these puzzles are incredibly complex, they require extremely powerful devices that consume massive amounts of energy to operate.

Bitcoin alone, the largest cryptocurrency, uses 121 Terawatt-hours of electricity every year. According to BBC, this quantity exceeds the energy consumption of Argentina alone. Another currency, ethereum, uses as much energy as the country of Qatar.

Despite this, it gets even worse. At its current rate, the price of cryptocurrencies, especially bitcoin, is set to increase in the near future. As a result, due to the very nature of blockchain technology, the complex algorithms required to “mine” bitcoin will only get more difficult as its price increases. As you may guess, this creates a recipe for disaster in the context of energy consumption, as harder puzzles equate to more energy-intensive computations.

Although the unhealthy energy use of cryptocurrencies does seem clear, the technology’s intersection with fossil fuels amounts to more pain for the environment. Specifically, for bitcoin, according to the University of Cambridge, most of its mining occurs in China, a country notorious for producing most of its electricity from burning fossil fuels, most notably coal.

So what does this amount to? According to CNBC, bitcoin mining alone—not considering other rapidly growing cryptocurrencies—accounts for almost 36 million carbon dioxide emissions each year. However, advocates for cryptocurrencies neglect their environmental impacts. They justify cryptocurrencies’ use by arguing that mining operations are intentionally done in areas dense in renewable energy. According to CoinShares (a firm advocating for cryptocurrencies), approximately 74.1% of the electricity needed for powering mining networks originated from renewable energy sources.

Although the environmental impact of mining can be up for debate,
the electronic waste generated by cryptocurrencies, another environmental concern, as
hardware becomes unusable over time is rather evident. Despite cryptocurrency sympathizers’ opinions, as cryptocurrencies continue to expand their influence to new investors, the cryptocurrency industry will be placed in the hot seat right next to other climate-change-inducing industries whose innovations undoubtedly harm the environment.

As a result, a new non-computational puzzle concerning the environment awaits as the effects
of climate change become more and more overt.