Bitcoin is an Energy Hog: The Trouble with Cryptocurrency

Introduction

When Bitcoin was invented in 2009, many dismissed it, and today many still doubt its credibility. In the beginning, Bitcoin had very little value and was often used for illegal purchases online because of its untraceability.

Today, cryptocurrency’s reputation has changed. It is now a widely accepted form of payment, and several countries have adopted its usage. El Salvador accepts Bitcoin as official currency, and Iran has used it to bypass international sanctions. ^{1 2}

Currently, one Bitcoin (BTC) is valued at $69,370.14 ³, and BTC is just one of more than 10,000 different cryptocurrencies, with a combined value of $1.94 trillion. ^{4 5}

However, as with other digital technologies, cryptocurrencies have a tangible environmental impact. In fact, the process to generate them, known as crypto mining, requires enormous amounts of energy,  and the facilities where this takes place create problems for the surrounding communities. 

This article will explore crypto mining energy consumption, the toll this takes on the environment and communities, and what is being done to address it.

But How Does Cryptocurrency Work?

The idea of cryptocurrency arose from the 2008 financial crisis. At that time, people sought a way to bypass the volatility of the banking industry. Cryptocurrencies promised to put money back into the hands of individuals, without needing banks and financial institutions. ⁶ With traditional money, banks or governments mint currency and keep track of ownership and transactions. 

Without a central institution, cryptocurrency relies on blockchain, a virtual ledger system shared by a vast network of computers. Any time someone uses crypto to buy or sell something, the transaction is recorded on the virtual ledger. ⁷ All computers in the network have a copy of this ledger, so if there is a discrepancy or error, it can be compared with others in the network to correct it.

This also serves to protect and secure the crypto, because if someone tries to alter the transaction record in their favor, the copies of ledgers on the other computers in the network show the correct information. ⁸ 

Surprisingly, crypto must be minted like traditional currency; it is not created out of thin air. The process of creating new crypto is called mining, and most forms of cryptocurrency use a system called proof of work to mint it. ⁹

In this proof of work mechanism, the system creates a complex math problem, and the computers in the network compete to solve it. Whoever gets the correct answer helps create new currency and also wins a fraction of it. ¹⁰ The more guesses someone can make, the better chances they have at winning, so more processing power increases one’s ability to earn cryptocurrency. 

As more computers join the network to compete, the system intentionally makes the math problems more difficult to solve. ¹¹ Additional computers mean more energy is needed to power the equipment doing the calculations. ¹² This results in a system that is intentionally resource intensive. ¹³

The Mining Industry

Because of the ability to earn cryptocurrency, crypto mining has turned into a profit-generating industry. In the beginning, it was a small-scale and scattered endeavor; any individual could mine cryptocurrency from their home. Before long, corporations learned about the potential profits and created large-scale mining facilities. 

Now individuals with home rigs cannot compete with large corporations. They have little chance of winning crypto, since the mining facilities’ higher processing power allows them to run more computations and to increase their odds of winning.

Crypto mining facilities are very similar to data centers. However, while data centers support numerous online activities like cloud computing, streaming, and websites, the former are devoted solely to cryptocurrency. The main hardware used for mining is not compatible with other uses. For this reason, the hardware cannot be repurposed like data center equipment can be, resulting in more electronic waste. ¹⁴

Read more about the environmental implications of data centers here.

Why It’s a Problem

Crypto mining’s biggest problem is its enormous energy consumption. If Bitcoin were a country, its electricity usage would rank it 27^th highest in the world. ¹⁵ And it is important to remember that most cryptocurrency mining is intentionally energy inefficient, so as more people are involved in the process, more energy is required to sustain the system.

In fact, the system is intentionally energy inefficient to protect itself and because the more energy that miners use, the better their chances of earning crypto. Comparing cryptocurrency transactions to those of other types of currency makes this even clearer. The energy footprint of just a single Bitcoin transaction is equal to the electricity used in almost 894,000 Visa transactions. ¹⁶

Proponents of cryptocurrency claim that mining drives growth in renewable energy, and while a substantial amount of crypto’s energy does come from renewables, there is no evidence to support this claim. If this were the case, we could expect cryptocurrency mining to use a higher percentage of renewable electricity than the global average. However, roughly 24% of cryptocurrency energy consumption is from renewables, which is on par with the global renewable electricity numbers. ^{17 18} 

In reality, mining companies merely seek out the cheapest electricity. Between 60-80% of mining expenses come from electricity costs, so cheap electricity is necessary for businesses to profit. ¹⁹ In some places, renewable energy is cheaper, but in other cases, fossil fuels are less costly. This is supported by the fact that in some areas, crypto mining has led to an increase in fossil fuel-powered energy.

In Seneca Lake, New York, a closed coal power plant was reopened, and in Indiana, a coal power plant slated for decommissioning was extended to power crypto mining facilities. ²⁰ In Kazakhstan, new coal plants have been built solely to support crypto mining. ²¹ 

However, energy usage is not crypto mining’s only problem; mining facilities create additional issues for the surrounding communities. These large-scale facilities are very similar to data centers in the issues they cause. The mining equipment, like servers, requires thousands of noisy fans to cool computing equipment. People have reported medical concerns, including sleeping problems, hearing loss, and headaches due to the fans’ persistent hum. ²²

In a North Carolina community near a mining facility, residents reported increased anxiety and stress, and some have said the noise triggered their PTSD. ²³

In addition, crypto mining rarely delivers the economic benefits it promises. This is especially troubling because local governments often offer incentives to attract mining facilities to their area in the hopes of job creation, but this rarely happens. A facility in Texas had promised 300 jobs but only delivered 14, and another in Kentucky resulted in only 5 jobs after receiving $4 million in electricity subsidies. ^{24 25}

Often, it is residents that end up paying high electricity bills to subsidize the mining operation. In 2022, households in New York state paid an extra $189 million annually in electricity because of crypto mining. ²⁶

How is the World Responding?

Around the world, countries and states have begun taking steps to address the effects of cryptocurrency mining. China, formerly home to three-quarters of the world’s mining facilities ²⁷, now has the world’s strictest crypto mining regulations. In 2021, the government completely banned both crypto mining and trading. ²⁸ Additionally, countries that have banned crypto mining include Iraq, Algeria, Nepal, and Kuwait, and many others have enacted restrictive regulations. ²⁹

However, this has merely resulted in carbon leakage – when one country’s strong emissions regulations push production to countries with weaker environmental laws. Experts believe this has led to a 20% increase in global mining emissions. ³⁰ 

In contrast, other countries and regions have welcomed crypto mining. Kazakhstan has offered subsidies to encourage mining operations that use renewable energy. ³¹

The US, home to the majority of mining facilities since China’s ban ³², has no single federal regulation, and state-level policies range from strict to welcoming. For example, New York state placed a moratorium on crypto mining ³³ while other states like Texas and Montana have offered subsidies to attract mining companies. ³⁴ 

One example has proven that cryptocurrency can be more energy efficient. Ethereum, the second largest cryptocurrency, switched from using Bitcoin’s energy-intensive proof of work mechanism to the more efficient proof of stakes in 2022. The change has reduced Ethereum’s energy consumption by 99%. ³⁵

Unfortunately, because of cryptocurrency’s lack of central authority, the switch hasn’t been universally accepted. The Bitcoin community still believes that the proof of work mechanism is superior and refuses to adopt it. ³⁶ Unless governments team up to enact legislation, the biggest name in cryptocurrency is unlikely to change.

Conclusion

Cryptocurrency shares many of the same problems with data centers. Both use large amounts of electricity and water. Both create health problems for surrounding communities, and both drive up electricity costs. Without a doubt, the effects, particularly the environmental ones, must be addressed for both, but cryptocurrency mining is perhaps less forgivable. 

While data centers make many aspects of modern life possible, the same cannot be said of cryptocurrency. Almost everyone in the world uses Google, watches Netflix, and backs up data on the cloud. Except for abstaining from AI usage, it is almost impossible to opt out. In comparison, cryptocurrency is not essential for financial transactions, much less for daily life. Less than 7% of the global population even owns cryptocurrency. ³⁷ Therefore, it is difficult to justify the resources required to support it. 

The fact that a solution to crypto’s energy problems already exists makes this even more egregious. Ethereum has proven that the proof of stakes mechanism can make cryptocurrency energy efficient. Of the many threats to the environment that we face, cryptocurrency is not the greatest, but it is a low-hanging fruit. Some countries have already taken action, but international cooperation is needed to regulate a sector that has a global impact.

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