What’s the Environmental Impact of Cryptocurrency?
/bitcoins--illustration-932730210-5008483229044ceca8c394fb9a191dab.jpg){kind=small}
Many people are bullish about cryptocurrencies like Bitcoin, but detractors point to a major flaw—cryptocurrency mining is highly energy-intensive. While mining is just one method available to validate cryptocurrency transactions and mint new crypto coins, it’s the method used by Bitcoin and Ethereum, the two leading cryptocurrencies.
Keep reading to find out how much energy is used by cryptocurrency mining, and understand the other environmental impacts of cryptocurrency. Learn about alternatives to crypto mining that use much less energy.
Key Takeaways
- Bitcoin and other proof-of-work cryptocurrencies require large amounts of energy—more than is used by entire countries—to perform the work associated with crypto mining.
- The largest country for Bitcoin mining is the United States, which accounts for 37.84% of Bitcoin mining activities.
- About 36 kilotons of electronic waste are annually produced as a byproduct of Bitcoin mining.
- Some cryptocurrencies do not use mining, but Bitcoin is unlikely to change its consensus algorithm.
Cryptocurrency Energy Consumption
There is no direct way to calculate how much energy is used for Bitcoin and cryptocurrency mining, but the figure can be estimated from the network’s hashrate and the consumption by commercially-available mining rigs. The Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin, the most widely-mined cryptocurrency network, used an estimated 85 Terawatt-hours (TWh) of electricity (0.38% of global electricity use) and about 218 TWh of energy (0.13% of global energy production) at the point of production—more than Belgium and Finland, using the latest country energy estimates from 2019.
Another estimate by Digiconomist, a cryptocurrency analytics site, places the figure at 130.3 Terawatt-hours, based on energy consumption through July 9, 2022. This computes to around 1455.8 kilowatt-hours of electricity per transaction, the same amount of power consumed by the average American household over 49.9 days.
Ethereum, the second-largest cryptocurrency network, is estimated to use 62.77 Terawatt-hours of electricity per year, based on energy consumption through July 9, 2022—comparable to the power consumption of Switzerland. The average Ethereum transaction required 163 kilowatt-hours of electricity, which is the same amount of power that an average U.S. household consumes in 5.51 days.
Ethereum developers have created a solution by implementing the proof-of-stake consensus mechanism, but it remains in the testing phase.
More than 20,000 different cryptocurrencies and over 500 exchanges exist worldwide. None of the cryptocurrency energy use reports or calculations account for the energy expended to develop new coins or administer services for them.
The amount of energy consumed by cryptocurrency mining will likely vary over time, assuming that prices and user adoption continue to vary. Cryptocurrency mining is a competitive process: as the value of the block reward increases, the incentives to start mining also go up. Higher cryptocurrency prices mean more energy being consumed by crypto networks.
Why Cryptocurrency Mining Requires Energy
The energy intensity of crypto mining is a feature, not a bug. Bitcoin mining is the automated process of validating Bitcoin transactions without the intervention of trusted third parties like banks.
The way the transaction validation process is designed uses large amounts of energy—the network depends on the computational power of thousands of mining machines. This dependency maintains the security of cryptocurrency blockchains that use proof-of-work consensus.
Environmental Impacts of Cryptocurrency Mining
Calculating the carbon footprint of cryptocurrency is more complicated. Although fossil fuels are the predominant energy source in most countries where cryptocurrency is mined, miners must seek out the most inexpensive sources of energy to remain profitable. In many cases, that means relying on new alternative energy installations.
Digiconomist also estimates that the Bitcoin network is responsible for about 73 million tons of carbon dioxide per year—equal to the amounts generated by Turkmenistan. Based on data through July 9, 2022, mining for Ethereum produces an estimated 35.4 million tons of carbon dioxide emissions, the same amount as New Zealand.
194.2 TWh per year
The combined energy consumption of the Bitcoin (130.73 TWh) and Ethereum (63.47 TWh) networks, according to Digiconomist, based on data through July 9, 2022.
Countries With the Largest Impact
Researchers at the University of Cambridge report that most Bitcoin mining occurs in the U.S., China, and Kazakhstan. According to the Center for Strategic and International Studies, about 76% of the energy consumed in China is generated from coal and crude oil. China’s percent of the global hash rate is 21%.
About 38% of mining takes place in the U.S. The U.S. gets most of its electricity by burning fossil fuels, per 2019 data from the EIA. Kazakhstan accounts for 13% of the world’s Bitcoin mining and mostly uses fossil fuels.
As a result, three countries heavily dependent on fossil fuels are responsible for around 72% of the world’s Bitcoin mining.
Electronic Waste
Cryptocurrency mining also generates significant electronic waste, as mining hardware quickly becomes obsolete. This is especially true for Application-Specific Integrated Circuit (ASIC) miners, which are specialized machines designed for mining the most popular cryptocurrencies. According to Digiconomist, the Bitcoin network generates approximately 36 thousand tons of electronic waste every year.
Could Cryptocurrency Mining Use Less Energy?
Large-scale cryptocurrency miners are often located where energy is abundant, reliable, and cheap. But processing cryptocurrency transactions and minting new coins does not need to be energy-intensive.
The proof-of-stake (PoS) method of validating cryptocurrency transactions and minting new coins is an alternative to cryptocurrency mining that does not use extensive computing power. The authority to validate transactions and operate the crypto network is instead granted based on the amount of cryptocurrency that a validator has “staked” or agreed not to trade or sell.
Other methods of validation, such as proof of history, proof of elapsed time, proof of burn, and proof of capacity, are also being developed. While Ethereum developers have stated their goal of retiring the proof-of-work mechanism, there is no such objective in the Bitcoin community. Since Bitcoin is the most popular crypto, it means that mining, along with its enormous energy costs, is likely here to stay.
Is Cryptocurrency Environmentally Friendly?
Some cryptocurrencies have intense energy requirements, special equipment needs, and generate lots of waste. In that sense, some are not environmentally friendly; However, it’s important to remember the environmental costs of gathering natural resources and expending energy and electricity to make and maintain fiat currency and our current banking system.
Can Bitcoin Become Environmentally Friendly?
In short, because the validation process is energy-intensive, competitive, and rewards-based, it is unlikely that Bitcoin will reduce its energy footprint. Even after the last bitcoin is rewarded, the network will still require large amounts of electricity to validate transactions.
How Much of Crypto is Renewable?
There is currently not enough official information available to determine how much of the energy consumed by cryptocurrencies is from renewable sources.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.
