Despite the intangibility of cryptocurrency, its effects are still physically impacting our environment. Recent studies are calling the currency an environmental threat due to its extensive energy consumption, and it doesn’t seem to be slowing down anytime soon. In the United States alone, Bitcoin mining creates approximately 18 million kilograms of carbon emissions. Just like traditional mining, the cryptocurrency mining industry is unsustainable.
For some of us, the industry can be an overwhelming and complex concept to grasp. To better understand how its effects may be damaging, it’s important to give a quick breakdown of how it all works. Cryptocurrency is essentially a digital payment system which doesn’t require a third-party, such as banks, to verify the transactions. Rather, it uses encryption (hence its name) to verify these transactions. The two more commonly known are Bitcoin and Ethereum, which are also the most valuable currencies as of today. Cryptocurrencies run on the blockchain, which is a ledger that keeps track of all transactions and updates available to the public.
Mining is the process of creating cryptocurrencies which involves several different approaches. In short, mining uses some sort of computing device to solve mathematical equations to validate the currency, and where proof of work also comes in. In an article from Business Insider, it’s explained that “when someone ‘mines’ cryptocurrency, they're actually running programs on their computer that are trying to crack the problem. The greater the power behind your computer, the greater chance you have of winning the right to update the blockchain and reap the rewards. So miners are incentivized to put more power behind their mining operations to beat their competition.” We’ll stop here before the information gets too much. In short, it’s not the currency itself that is the problem, but the technology used and their proof of work algorithms.
Ethereum alone uses nearly the same amount of electricity as the entire country of Kazakhstan, and has a carbon footprint comparable to Libya. A single Ethereum transaction has the same carbon footprint as watching 23 453 hours of Youtube. Even worse is its counterpart Bitcoin, which has a total energy consumption comparable to Thailand’s, and a single transaction’s carbon footprint is comparable to watching 196 855 hours of Youtube. Cryptocurrency is a competitive industry, which also enforces the instability of its model. As the amount of machines within the market increases, the more difficult it becomes to mine, which further increases competition and perpetuates the cycle.
Even non-fungible tokens (NFTs) are adding fuel to the fire. They’re essentially individual pieces of crypto art, but unlike cryptocurrencies they are one-of-a-kind and cannot be traded for the same thing. The average NFT consumes the equivalent of one month’s worth of electricity within a single household. This is because NFTs are most commonly sold on marketplaces which use Ethereum as the main currency, and they are also minted using the same proof of work methods as most cryptocurrencies. However, it’s hard to prove these numbers and the total effects of the damage. NFTs and cryptocurrencies are still a relatively novel phenomena which makes researching long-term effects difficult, creating a gap in knowledge within the field.
However, not all hope is lost. Currently, proof of work is the main means of validation which consumes the most energy. Alternatively, there’s proof of stake, proof of history, and proof of elapsed time. Firstly, proof of stake uses 99.9% less energy than its counterpart proof of work, and allocates responsibility based on the number of tokens one holds. Although less secure, it’s far more sustainable. Proof of history’s energy consumption per transaction pales in comparison to Bitcoin’s, which uses the same amount of energy as one household over the course of 73 days. This algorithm encrypts the passage of time and doesn’t require any secondary validation from humans, which ultimately makes it faster. Finally, proof of elapsed time recognizes that “each node in the blockchain network generates a random wait time and goes to sleep for that specified duration. The one with the shortest wait time then commits a new block to the blockchain, broadcasting the necessary information to the whole peer network. It is similar to the proof of work mechanism but more efficient because the miner’s processor goes to sleep.” In addition to this, cryptocurrencies can shift to renewable energy sources which can also increase the profit margins from mining. Some have already shifted their business models, and the industry has promised to reduce their emissions 100% by 2030.