Cryptocurrency used to only be the domain of fringe technologists. But with the recent stratospheric rise in the price of bitcoin, it’s now mainstream. It’s featured in big newspapers and magazines. Due to its unique architecture, it consumes a lot of electricity. What is cryptocurrency’s impact on the environment?
What is cryptocurrency?
The most popular cryptocurrencies are Bitcoin and Etherum. So-called altcoins such as Cardano and Nano are trying to gain traction. They’re decentralized, meaning there’s no central like with the US dollar or the Japanese Yen. New coins are generated through “crypto mining”. Powerful computers solve difficult math problems and earn cryptocurrency as a reward.
Cryptocurrencies are based on blockchain technology. To record transactions, there’s a distributed digital ledger. All transactions are shared amongst the nodes of the network. All computers and all the mining rigs globally are part of this.
The electricity required to power this massive infrastructure is tremendous. By some estimates, it equals 32 terawatts of energy. That’s enough for 3 million households. Some have said that the carbon footprint is bigger than that of countries like New Zealand.
Other forms of payment consume far less. For example, Visa does billions of transactions a year and only uses 50,000 terawatts.
Additionally, the costs climb rapidly. Cryptocurrencies require more electricity as their popularity increases. This is because the math problems they solve get harder as the price of coins increases. More computer time is required to generate each coin and thus more energy is required.
In the beginning, cryptocurrency could be mined by hobbyists with their PCs at home. As it’s become a big business, the process has industrialized. Some miners are publicly traded companies. The most popular location is rural China, where land and electricity are very inexpensive. The energy comes from inefficient and outdated coal-based power plants.
Climate change is one of the biggest concerns of our time. We’re already seeing the effects with higher average temperatures and extreme weather conditions. Notable leaders like Bill Gates and the executive director of the Sierra Club have criticized cryptocurrencies for their impact on the environment.
With the economies of developing countries booming, human society is already struggling to slow down the growth of carbon use. What is it supposed to do if the future of the financial system is so thirsty for energy?
Some might argue that it’s difficult to measure the global impact. After all, one of the major advantages of crypto is that it’s all anonymous. It is a challenge to calculate worldwide usage trends.
Different mining rigs have different consumptions of electricity. Those with newer chips will be more powerful and more energy-efficient. Eventually, old rigs won’t be cost-competitive and miners will scrap them to invest in new ones.
Miners have a tremendous variety of sources of power. While a lot might come from inefficient coal power plants, some might have solar panels on their facility.
A researcher did a calculation that even if all the rigs are highly-efficient, cryptocurrency consumes as much as the country of Slovenia.
Cryptocurrency is still in its infancy. Altcoins are coming out all the time and might replace Bitcoin. Bitcoin has even been “forked” and new crypto called Bitcoin Cash has emerged.
There’s no way to know whether down the line a more environmentally friendly cryptocurrency will emerge. And even if the costs are great, what if the benefits are massive as well? Real use cases of crypto are still emerging. But what if international transfer fees are slashed? That’ll save billions for migrant workers. If cryptocurrencies replace ones based on fiat (like the dollar or the euro), our economies might be more stable and there would be lower interest rates. It’s hard to know.
Cryptocurrency is now mainstream and is a major trend. It has a big negative impact on the environment. However, things might change and the benefits might be massive.