Bitcoin plunged to a record low of $28,000 last week from a high of $65,000 in April. The cryptocurrency took a beating after China pulled the plug on miners, significantly reducing the BTC hash rate. Many crypto skeptics have since pointed to the ever-raging questions: how much energy does it take to produce Bitcoin? What are the environmental implications?
Crypto mining seems to be complicated. But it isn’t. Mining Bitcoin requires using computers to solve complex mathematical problems. A BTC is created when one of those problems is solved. The point of Bitcoin, according to Satoshi Nakamoto’s founding white paper, was to enable instantaneous, borderless transactions without the high fees or foreign exchange barriers that exist today.
At first, average computers could solve the algorithms, but as the puzzles got harder – a consequence of greater mining – they could not keep up. Special computers with huge processing power are required and these need a lot of electricity – around 121 terawatts annually, equivalent to the annual carbon footprint of Argentina.
Hence the attack on Bitcoin, NFTs, and other forms of crypto. How much does this monetary system hurt the environment?
Bitcoin’s Carbon Footprint
Although mining Bitcoin does not necessitate the use of pickaxes or other mining gear, this does not imply that cryptocurrency is energy efficient. In fact, the digital currency consumes a lot of energy.
Bitcoin and NFTs both produce massive amounts of carbon emissions. A single bitcoin transaction, for example, has the same carbon impact as 680,000 Visa transactions or 51,210 hours of YouTube bingeing. The average NFT produces roughly 440 pounds (200 kg) of carbon, which is the equivalent of driving 500 miles in a gasoline-powered car. According to the Digiconomist website, a single Ethereum transaction consumes more than 70.32 kWh, enough to power one U.S. household for 2.5 days. This is equivalent to a carbon footprint of around 75 pounds (34 kg) of carbon dioxide (CO2).
According to the Cambridge Center for Alternative Finance (CCAF), Bitcoin currently consumes around 110 Terawatt Hours per year — 0.55% of global electricity production, or roughly equivalent to the annual energy draw of small countries like Malaysia or Sweden.
Between 2018 and 2019, the amount of computing power required to mine bitcoin doubled, but where does this massive amount of electricity come from? It might be said that we are increasingly relying on renewable energy sources. According to the University of Cambridge research, 76% of miners employed renewable energy in 2020.
“The more machines a miner operates, the more likely he is to find the solution to the puzzle,” the CCAF explained. “However, more machines also means that more electricity is needed to run and cool the equipment, which in turn results in higher costs for the miner in question. Miners are thus always searching for abundant electricity sources at the lowest possible price.”
As the NFT gold rush surged in the first quarter of 2021, many analysts pointed to the fact that increased interest in NFTs was exacerbating the environmental implications of mining cryptocurrencies.
“With electricity consumption of cryptocurrencies being more than several countries, the rush towards NFTs has further increased this issue,” said Devesh Mamtani, an NFT expert at Century Financial in the UAE. “This is very concerning.”
Bitcoin is no different. Over the past two years, the historic rise of Bitcoin has caused emissions to increase by over 40 million tons—equivalent to 8.9 million cars added to the road, according to a Bank of America report.
A March 2020 study by energy research journal, Joule, said bitcoin accounted for about 80% of the market capitalization of “proof of work” coins, of which an estimated 500 exist, and about two-thirds of the energy.
However, there is no way of knowing where miners obtain their electricity; it’s difficult to trace because rigs typically travel to where the cheapest energy is, and in nations like China, the world’s largest bitcoin miner, inexpensive renewable energy is scarce.
Bitcoin proponents continue to believe that the benefits outweigh the costs, claiming that cryptocurrencies are the foundation for the future financial system. In a white paper, certain companies, including Jack Dorsey’s Square and Cathie Wood’s Ark Investment, suggested that the bitcoin network could incentivize the faster development of green energy.
“Increasing bitcoin mining capacity could allow the energy provider to ‘overbuild’ solar without wasting energy,” the paper said.
Musk And New Mining Developments
Elon Musk went back on his previous decision to let buyers pay for Tesla cars using Bitcoin. His reason: mining the digital currency is taking its toll on the environment.
Tesla said it won’t sell its bitcoin. The automaker is sitting on $2.5 billion worth of the digital coin and Musk said it intends to resume transactions with bitcoin once mining “transitions to more sustainable energy.”
“We are also looking at other cryptocurrencies that use <1% of Bitcoin’s energy/transaction,” he said.
The Tesla CEO’s reversal, made on Twitter, led to a steep fall in the value of Bitcoin, with over $365 billion of BTC’s market value wiped out within 48 hours. Many Bitcoin maximalists went for Musk’s throat, calling him a hypocrite. A new crypto coin named “FuckElon” appeared as a protest against Musk.
In theory, a greener version of bitcoin is possible. Bitcoin’s code could transition to a less energy-intensive consensus process, in which a new piece of the cryptocurrency’s blockchain record follows different rules. Every miner, on the other hand, would have to transition to a new way to work. But the possibility of a quick change is almost impossible. The Bitcoin community is riddled with disagreement.
However, in El Salvador, President Bukele has turned to volcano-powered mining as the country adopts Bitcoin as the country’s legal tender. This might be a step in the right direction in the reduction of Bitcoin’s carbon footprint.
Ethereum’s creators have also promised to switch their algorithm from a ‘proof of work’ to a ‘proof of stake’ model to make mining more environmentally friendly. For the proof of stake model, miners will be rewarded depending on how much cryptocurrency they hold, rather than competing to solve complex mathematical calculations. Miners demonstrate that they have a “stake” in keeping the blockchain accurate by storing some of their cryptocurrency in the network, obviating the need for computers to solve the difficult algorithms. Emissions are reduced by reducing computing labor. The shift to “Ethereum 2.0” could reduce the energy consumption of NFTs by 99%, because proof of stake has basically no emissions.
In addition, countless firms have sprung up to fill this energy need, each aiming to find new methods to infuse Bitcoin with more ecologically friendly energy. Take, for example, Hong Kong-based LiquidStack, which tries to reduce the temperature of mining rigs more efficiently, or Genesis Mining in Iceland, which only employs renewable energy sources.
As fast-growing as the NFT market is, there is also growing pressure from artists and green-minded collectors for transparency, for platforms to commit to lower-carbon systems and to offset emissions. “From an art world perspective, it would be great to see crypto art and NFT platforms publicly and transparently address sustainability issues and commit to subsidizing the ecological footprint and donating to carbon credits,” said Switzerland-based Sascha Gianella, art advisor and the founder of We, The Muse, a visual artist professional support platform, who is currently writing a paper on the subject.
There are private blockchains, and others, like Flow, solely dedicated to NFT transactions, allowing them to avoid some of the difficulties that plague cryptocurrencies like Ethereum. However, such blockchains stray from the original purpose of cryptocurrencies, which was to build a decentralized network where anybody can conduct transactions without the control of centralized institutions.
The UN is also looking into measures to avoid the rise of cryptocurrencies from jeopardizing its work on climate change and is backing the Rocky Mountain Institute’s “Crypto Climate Accord” program. They aim to make sure that future blockchain-based initiatives are energy-efficient.
Miners will not only improve their profits by producing digital currency more efficiently, but they will also raise the likelihood that a really innovative component of Bitcoin, the blockchain, will become widespread. Many firms’ carbon footprints might be reduced by incorporating blockchain technology, which is similar to a public ledger, into every aspect of their operations if the energy consumed is significantly reduced.
As crypto adoption continues to grow, the crypto community will have to figure out how to divorce itself from large carbon emissions. NFT will need to separate itself from Ethereum so that digital arts can be sold and distributed without impacting the environment. This is the only way the crypto future will yield any beneficial returns without harming the environment.