In recent years, cryptocurrencies have become immensely popular, being a common topic of discussion around the globe. What’s often less talked about is the carbon footprint of cryptocurrencies. While often marketed as a cleaner alternative to physical currency, studies suggest cryptocurrencies may carry an even larger environmental footprint than conventional currencies. This article explores the impact of cryptocurrencies and sustainable options.
Many cryptocurrencies, including Bitcoin, operate off of a Proof of Work (PoW) system. In this system, cryptocurrencies can be “mined” by powerful computers that are competing to solve complex mathematical puzzles. These computers sift through massive amounts of data, attempting to solve hash puzzles, which, when solved, provide the miner with cryptocurrency. Because of the complexity of the PoW system, and the computation power required, these systems are incredibly energy intensive. A popular tracking metric, the Cambridge Bitcoin Energy Composition Index (CBECI), estimates that the most popular PoW currency consumes an estimated 129.45 Terawatt Hours (Twh) annually as of July 2023, a number similar to the annual energy consumption of countries such as Argentina and Sweden. Additionally, Bitcoin has been estimated to release 65 Megatons of Carbon annually and has even been predicted to be accountable for a 2° C global temperature rise if the currency grows at the same rate as similar technologies. PoW-based cryptocurrencies are growing at an incredibly fast rate and will continue to have a massive carbon footprint if no action is taken.
While the Carbon impact of crypto mining is often brought up, the water requirements of the energy-intensive process often go undiscussed. Water is frequently pumped through crypto-mining facilities to cool the computers as crypto-mining produces massive amounts of thermal energy. Cryptocurrencies are estimated to use 3668 x 106m3 (meters cubed) of water annually, which can easily put stress on water-scarce regions. Central Asia has struggled with water scarcity, and the prevalence of crypto-mining in the region could exacerbate issues.
Other environmental concerns stem from the usage of coal and other fossil fuels to power crypto operations. Kazakhstan, which accounted for nearly 1⁄5 of global Bitcoin mining during 2021 (CBECI), relied on a coal-powered energy grid to sustain mining operations, which not only carried a hefty environmental impact but also over-stained the grid, leading to a government shutdown of mining operations. In the United States, retired power plants are being resurrected to supply crypto mining. Greenidge Generation, a natural-gas plant in New York, was brought back online in 2020 to mine cryptocurrency. Crypto mining utilizing fossil fuels adds to the already sizable footprint of the industry and puts communities at risk.
Proof of Stake (PoS):
The other main system that cryptocurrencies utilize is known as Proof of Stake (PoS). In this system, there is no crypto mining. Instead of relying on hash puzzles to validate transactions, “Validators” are chosen to add transactions to the blockchain (a digital ledger of all the currency's transactions) and stake their own cryptocurrency as collateral. Because this system skips the mining process of PoW systems, it consumes much less energy. The primary competitor to Bitcoin, Ethereum, reduced power consumption by over 99 percent by switching from a PoW system to a PoS system in September 2022. By removing the competitive mining aspect from blockchain creation and relying on community validation, PoS systems are drastically more environmentally sustainable than PoW systems.
PoS systems provide a sustainable path for cryptocurrencies while providing unique benefits, such as having more accessibility than a PoW system which requires high-priced computers to mine. The success of Ethereum in merging into a PoS network proves that it is possible for cryptocurrencies to make the switch.
Over the past few years, there has been a push for cleaner cryptocurrencies, leading to new “green cryptocurrencies” promising a reduced impact. These currencies employ various techniques, from new blockchain technology to carbon offsets, to reduce their environmental impact. Some projects have integrated the usage of renewable energy into their coin. One example of this is SolarCoin, which creates one coin for every MegaWatt hour of solar energy the user creates. Another way that cryptocurrencies are working to limit their environmental impact is through carbon offsetting. One upcoming project, Ecoterra, promises to establish a market for carbon offsets and recycled goods, as well as reward users for recycling with cryptocurrency. Another project, KlimaDao, issues tokens backed by carbon credit projects. The rise in green cryptocurrencies is encouraging as more people take action to combat the environmental footprint of the industry.
How you can help:
One of the ways you can help is to be conscious of what you buy. By investigating the impact of a cryptocurrency before you buy and choosing to buy a sustainable coin, you can help reduce the impact of the crypto industry. Whether it be purchasing a PoS-based currency or buying a coin that supports carbon-offsetting projects, there are many ways to become involved in cryptocurrency without contributing to the negative environmental impact.
Another way you can help support a cleaner future is through advocacy. By reaching out to lawmakers and industry leaders and by being vocal in your community, you can make your voice heard. Community action is a fundamental step in progress, urging policy-makers and industry leaders to make positive changes.