Is crypto throwing the planet? Digital assets like Bitcoin rely on so-called miners whose giant server farms guzzle electricity day and night to power the networks that support them. The industry’s carbon footprint has grown so rapidly that it is alarming climate campaigners, governments and other large energy users. China banned crypto mining in 2021, and Elon Musk stopped accepting Bitcoin as payment for his Tesla electric cars. When Bitcoin rival Ethereum cut its power consumption in a major upgrade in September, it put pressure on other parts of the crypto world to clean up its act.
Bitcoin is red hot. Can it ever turn green?
1. How much energy does crypto use?
Bitcoin’s estimated electricity use rose from an annual rate of 14 terawatt hours in 2017 to 105 terawatt hours in 2021 — more than the entire domestic consumption of Belgium — according to the Cambridge Center for Alternative Finance, which keeps a running estimate. It expects demand to fall in 2022, as a fall in the value of crypto assets pushed some miners out of business. However, research platform Digiconomist estimates that the pollution created by generating electricity for crypto will still amount to around 64 million tons of carbon dioxide in 2022, more than the annual global emissions avoided through increased use of electric vehicles.
2. Why does crypto need so much energy?
To order transactions on a blockchain, Bitcoin and many other networks use an algorithmic process called “hashing”. This produces a number that miners compete to guess in a brutal effort that can involve trillions of attempts. The first to succeed is rewarded with newly issued coins in a process known as “proof of work”. As more miners enter, the guesswork becomes more difficult, forcing them to invest in increasingly powerful machines. Many miners now have thousands of computers languishing in cave warehouses.
3. How are miners trying to cut their carbon footprint?
Some have established themselves in places such as Norway and Texas, where there is often plenty of emission-free solar, wind or hydropower. Miners say their presence encourages the development of these clean power sources by helping to balance the grid—buying up surplus renewable energy when it’s plentiful and shutting down their computer banks when demand for electricity threatens to outstrip supply. Some miners have put solar panels on top of their server halls or signed deals to buy low-carbon nuclear power. Others derive power from excess natural gas that would otherwise be “flared” or burned just to get rid of it.
4. So is crypto getting greener?
It is hard to say. A February 2022 study in the research journal Joule estimated that Bitcoin’s environmental impact worsened after China’s mining ban, and the share of renewable energy used to power the network fell from more than 40% in 2020 to around 25% in August 2021. Some miners moved to be near zero-carbon power sources after the ban, while others emerged in places where coal still dominates the energy mix. The picture was further obscured by the “crypto winter” of 2022, which caused some less efficient mining operations to go away.
5. How do the authorities react?
Some are pushing back against cryptomining to protect their environmental goals and the stability of the power grid. China’s ban was a response to power shortages that forced the government to cut industrial production. Iceland, Iran, Kosovo and Singapore also have limited crypto mining. The European Commission urged member states in October to end tax breaks for miners, and be ready to close them, in response to the region’s energy crisis. Some governments prefer to reserve renewable energy for older, energy-intensive manufacturing industries that are trying to decarbonize.
6. Is crypto’s carbon footprint a turnoff for users?
It has prevented some large companies and investment funds committed to fighting climate change from investing in crypto. Ethereum’s move to a new system known as “proof of stake”, where people offer up, or stake, some of their tokens for a chance to order and validate blocks of transactions, cut power consumption by more than 99%. Ethereum’s backers hope this will change the minds of developers who had avoided using the platform for finance, gaming and other applications because of its large carbon footprint.
7. What does this mean for Bitcoin?
Climate activist groups have urged Bitcoin’s backers to find their own low-energy technology, but many of the token’s die-hard backers oppose meddling in the system. And it is not clear who will lead such a change. The Ethereum switch was initiated by the Ethereum Foundation, which was established to ensure the token’s long-term success. A number of organizations advocate for Bitcoin, but it has no clear leader.
–With help from Eric Lam, Olga Kharif and Josh Saul.
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