As the world searches for the best way to tackle climate change, we’ve identified fossil fuels, agriculture, and industrial pollution as the main offenders, but in recent years the discussion has turned to cryptocurrency. . Mining, especially Bitcoin mining, uses an immense amount of energy, while the race among would-be crypto-millionaires to build the most powerful mining platform produces far more e-waste than e-waste. large bank accounts.

How much does cryptocurrency cost the environment? Are mining and crypto transactions really contributing to climate change? Here’s what we know so far.

How much energy is too much energy?

The most obvious environmental impact of cryptography is the electricity required for the mining process, which is how new digital coins are created. Although most know it as Bitcoin mining, there are many forms of cryptocurrency that rely on mining. But since the release of Bitcoin, it has become increasingly difficult to strike new currency units through mining. This was by design, as the currency was capped at 21 million units, so the more units minted, the fewer units available to mine and the more computing power it takes to craft more. news.

This pre-programmed scarcity combined with the potential for financial gain (a Bitcoin is worth around $ 42,000 at the time of this writing, and the current reward for mining a new block is 6.25 Bitcoin) means more people use more electricity to extract what is left. The Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin mining uses more electricity globally per year than some countries, including the Netherlands and Pakistan.

(Image: Digiconomist)

The environmental concern comes from the estimated carbon footprint generated by the power plants providing this energy. And it’s not just mining that uses a lot of energy – a single Bitcoin transaction is estimated to deliver 2,292.5 kilowatt-hours of electricity, enough to power a typical American household for more than 78 days.

Electricity may seem like a clean source of energy, but many countries burn fossil fuels to produce it, which increases carbon in the atmosphere and worsens climate change. It is estimated that the United States is home to around 35% of Bitcoin mining operations, according to the University of Cambridge, and generates 60% of its electricity from fossil fuels.

There is also the issue of physical electronic waste. Specially designed computers, graphics cards, ASIC platforms and more are used for mining. As the increase in computing power translates into an advantage in the race to extract more parts, people are constantly upgrading and throwing away old equipment, producing up to 30,000 tonnes of electronic waste every year. .

Why does crypto use so much energy?

bitcoin fingerprint

(Credit: Digiconomist)

Digital currencies were difficult to mine and required a lot of computing power so that no one person or group could take control of the entire network. This feature is part of what makes cryptocurrencies decentralized, which means they don’t have a single point of control.

Popular cryptocurrencies like Bitcoin and Ethereum operate on what’s called a Proof of Work (PoW) system, which relies on people having to solve equations of varying difficulty to mine new coins and add new ones. blocks of information to the blockchain of a digital currency. This system was developed, in part, to counter cyber attacks where a person creates a multitude of false identities and uses them to take control of the majority of the network.

Because everyone on the network is fighting to be the first to solve these equations and get the monetary reward, the person with the most processing power has the best chance of winning. This causes people to set up larger mining rigs (or even networks of mining rigs) that solve equations faster. Since the amount of energy used depends on the size of the mining network, ever increasing amounts of energy are required to mine new parts.

The price and availability of electricity can also affect the volume of cryptocurrency mining operations. If electricity is cheaper in one country (or even part of a country) than another, it makes business sense to centralize mining operations there.

An important point to note in discussing the environmental impact of cryptocurrency is that the amount of energy it uses might not directly correspond to carbon emissions. According to the Harvard Business Review, the energy mix – or the sources the miners come from – will affect actual carbon emissions from cryptocurrency mining.

In the United States, about 60% of grid energy comes from fossil fuels like natural gas, coal, and petroleum. So while it’s safe to say that US-based mining operations use fossil fuels for the majority of their electricity, this may not be the case for operations based in other countries. Considering the large amount of energy consumed by Bitcoin alone, however, it seems like cutting corners to say that it is not contributing greenhouse gases in one way or another.

The power plants needed for crypto mining can also have an impact on the surrounding ecosystem. According to Columbia Climate School, the Greenidge Generation plant in Dresden, New York, draws millions of gallons of water to cool itself while running, and discharges some of that water into Seneca Lake at 30-50 degrees Fahrenheit at- above normal temperature, endangering wildlife.

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Can we reduce the environmental impact of crypto?

proof of participation


Efforts to make crypto greener include using methane from fossil fuel drilling that is typically burned, and setting up factories in areas where wind power is plentiful, such as West Texas. These are good ideas in theory, but if the price of Bitcoin were to collapse, it might not be financially feasible to implement these projects or others like them.

Instead, developers are turning to designing future cryptocurrencies to reduce energy costs, primarily by switching to new validation systems that are not proof of work. One example that is growing in popularity is the Proof of Stake (PoS) system, which relies on how much of a certain cryptocurrency a user has agreed to stake, or hold and not sell.

Each person who agrees to wager cryptocurrency becomes a validator who can validate the authenticity of transactions on the blockchain in the same way a miner would. These people are chosen at random, and a number of validators must agree on transactions before they are added to the chain. Once a new block is created, validators are rewarded with coins and keep the coins they have staked.

This uses reduced computing power compared to the race to analyze the equations that accompany mining in a PoW system. Ethereum will soon use a variant of the PoS system to verify new blocks on its blockchain. Other methods are also under development, including proof of history, proof of elapsed time, proof of burn, and proof of ability.

Initiatives such as the Bitcoin Mining Council and the Crypto Climate Accord are also developing new ways to make crypto mining and transactions more energy efficient. The Crypto Climate Accord has a stated goal of running all blockchains on fully renewable energy by 2025. Some mining operations are currently running on renewable energy, but it is difficult to determine an exact percentage.

These measures can all lower the energy cost of cryptocurrency and crypto mining, but e-waste issues and other environmental consequences have yet to be addressed for cryptocurrency to become sustainable in the long run.

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