If you’ve been paying attention to the news in recent months, you will no doubt have come across the headlines over cryptocurrency’s energy consumption as it increases in popularity.
After Tesla recently announced they will no longer accept Bitcoin as payment for their electric vehicles due to concerns over its carbon footprint, and others calling it a “dirty currency”—Bitcoin’s carbon footprint per transaction is estimated to be more than a million times higher than online VISA payment—the discussion has certainly caught the attention of environmentalists.
However, while there are communities of people across the globe deeply ingrained in the world of cryptocurrencies and mining, to many others it is in itself a digital minefield. With that in mind, we’re hoping we can give a brief introduction to a very large topic and help clear the air (so to speak) on why cryptocurrencies have such a high carbon footprint and whether or not they are actually bad for the environment.
Why does cryptocurrency use so much energy?
The basic idea behind cryptocurrencies is to create a form of money which is not tied to traditional currencies and is not centralised in a particular location, like a bank. To many, this means more freedom to trade and less middle men involved in transactions. People can receive their digital “coins” by obtaining a virtual wallet which contains a personal identifier to allow them to be confirmed as the owner of the coins and to complete transactions.
So where does all this energy usage come from? To verify transactions most cryptocurrencies use a technology called blockchain, which is essentially a huge list of all recorded transactions stored securely in a way that cannot be changed by anyone. To add new transactions to the blockchain, a process called mining is used, which involves many computers from all over the network performing complex tasks to verify the transaction. This process uses a lot of electricity.
When scaled up to global proportions, it becomes clear why this issue has been hitting the news. The most popular cryptocurrency, Bitcoin, has been coming under fire after a study revealed that its mining processes are now estimated to be using as much energy annually as the country of Argentina.
Yet, it's clear that the popularity of the technology is not slowing down - with El Salvador becoming the first country in the world to declare Bitcoin as an official currency, and with growing media attention, peoples’ perception of cryptocurrencies as a legitimate and secure form of money only grows. So what is the outlook for cryptocurrency’s carbon footprint, and are there options for investing in this technology in an eco-conscious way?
High levels of electricity use result in a large carbon footprint when the energy is obtained from sources like burning coal which emit greenhouse gases and contribute to climate change. There are concerns that cryptocurrency miners are heavily based in places where the energy is cheap and primarily derived from fossil fuels sources, to the point that it has been suggested that a large base of Bitcoin miners in China could actually push the country away from meeting its climate change targets. This has resulted in a drive for more mining to take place in countries with greener grids, and there are even some who have argued that Bitcoin operations are incentivising increased production of renewable energy. However, there is still a very long way to go before crypto is off the hook for its huge levels of energy usage.
The other side of the crypto carbon coin
One of the problems with the conventional method of cryptocurrency transaction verification, known as “proof of work”, is that it’s arguably energy hungry by design. This has led to some cryptocurrencies innovating in alternative, more energy efficient methods. Cardano, which instead uses a method known as “proof of stake”, and does not use the same energy-guzzling mining process, could offer a cryptocurrency option which is 4 million times more energy efficient than Bitcoin, while Ethereum is promising a future network which also embraces this method and uses over 99% less energy.
These developments, paired with more renewable energy sources for powering their network, could be absolutely essential in saving not only crypto’s reputation on the world stage, but also allowing it to grow and be embraced in a way compatible with the sustainable societies essential for our future.
In stark contrast to the dirty energy controversy surrounding large cryptocurrencies like Bitcoin, alternative cryptocurrencies have appeared which promise to put sustainability at the forefront of their models. One in particular, the ECO coin (founded by Pawprint’s Head of Design, Lewis Just) is taking the notion that value is derived from exploiting the natural world and turning it on its head. Instead, this currency actually rewards its users with coins for performing sustainable acts. In many ways, this shows the potential that cryptocurrencies have to open new doors to our perception of what is considered valuable in our society and what actions should be rewarded.
“Cut a tree down and you can make money from that. But nobody is paying people to protect or even grow the forest. The ECO coin was founded on the principle that people should be economically rewarded for their sustainable actions…” ~ Lewis Just, ECO coin
The criticism from environmentalists is not what cryptocurrency is, or what it stands for - that is something for the economists, the enthusiasts, and increasingly, the standard consumer to decide. However, until there is a significant reduction in the energy it is consuming and a considerable shift towards renewable sources, it is simply not sustainable in a world that is facing a climate emergency. We hope those leading this area of technology recognise the lasting impact they stand to have on our society - and that that impact will become a positive one.