The price of bitcoin declined after Tesla CEO Elon Musk announced his company would no longer be accepting it as a form of payment due to its ties to fossil fuels. His tweet triggered a debate on bitcoin’s environmental impact. Bitcoin and most cryptocurrencies, in general, consume a lot of electricity. Many environmentalists have raised concerns about the energy consumption of cryptocurrency mining, which may cause increased carbon emissions as well as climate change.
These huge energy costs are due to the competitive nature of proof-of-work blockchains. Instead of storing account balances in a central database, cryptocurrency transactions are recorded by a distributed network of miners, boosted by block rewards. These specialized computers take part in a computational race to record new blocks. The only option to create a new block is to solve cryptographic puzzles.
Cryptocurrency advocates think that the system offers numerous benefits over centralized currencies. Notably, it doesn’t rely on any trusted intermediary or single point of failure. Nonetheless, the puzzles for mining require many energy-intensive computations.
Bitcoin has the most popular cryptocurrency network, and it uses 121 Terawatt-hours of electricity every year. One main concern among environmentalists is that mining tends to become less efficient as the price of cryptocurrencies continues to increase. In the case of bitcoin, the mathematical puzzles to create blocks get more difficult as its price goes up, but transaction throughput remains constant. Thus, over time, the network will consume more computing power and energy to handle the same number of transactions.
Cryptocurrency industry and fossil fuels
Around 65% of bitcoin mining takes place in China, a country that generates most of its electricity by burning coal.
Coal and other fossil fuels represent a main source of electricity worldwide, both for cryptocurrency mining operations and other industries. Power plants powered by coal represent an important contributor to climate change. Bitcoin mining is responsible for about 35.95 million tons of carbon dioxide emission each year.
Cryptocurrency supporters tend to downplay the energy consumption of cryptocurrencies. They claim that mining operations tend to concentrate around areas with surplus renewable energy. These claims rest on the fact that such miners are not geographically fixed, allowing them to move in search of surplus energy. For instance, some Chinese mining firms migrate from one province to another in search of the cheapest energy.
Cryptos and less-known facts
Cryptocurrency mining also generates quite a large amount of electronic waste as hardware becomes obsolete. This is especially true in the case of Application-Specific Integrated Circuits. Unlike other computer hardware, it is not possible to reuse such circuits for any other purpose. The bitcoin network generates between 8 and 12 thousand tons of electronic waste every year.
However, there are many cryptocurrencies that have a modest impact on the environment. In particular, proof-of-stake blockchains like EOS as well as Cardano don’t have mining. So, it is possible to process transactions with the same energy requirements as an ordinary computer network.
This model described above has a clear advantage over mining. But it is difficult for an established network to transition to a new consensus mechanism.
There is little doubt that bitcoin and other proof-of-work blockchain use huge amounts of energy. Much of this energy comes from burning coal and other fossil fuels. Cryptocurrency advocates claim that renewable sources are also a major component. Even the best-case scenarios indicate that mining is the main factor when it comes to carbon dioxide emissions.