What’s the Environmental Impact of Cryptocurrency?

Many people are bullish about cryptocurrencies like Bitcoin, but detractors point to a major flaw—cryptocurrency mining is highly energy intensive. While mining is just one method available to validate cryptocurrency transactions and mint new crypto coins, it’s the method used by Bitcoin and other leading cryptocurrencies.

Keep reading to find out how much energy is used by cryptocurrency mining, and understand the other environmental impacts of cryptocurrency. Learn about alternatives to crypto mining that use much less energy.

Key Takeaways

  • Bitcoin and other proof-of-work cryptocurrencies require large amounts of energy—more than is used by entire countries—to perform the computations associated with crypto mining.
  • The majority of Bitcoin mining occurs in the United States, which accounts for 35% of Bitcoin mining activities.
  • Renewable energy sources such as hydropower supply close to 39% of the energy used in Bitcoin mining.
  • About 30 kilotons of electronic waste are annually produced as a byproduct of Bitcoin mining.
  • New methods for validating cryptocurrency transactions are being developed and implemented to reduce the energy requirements for cryptocurrency.

Bitcoin Mining Explained

Energy Consumption of Cryptocurrency Mining

The Cambridge Bitcoin Electricity Consumption Index indicates that Bitcoin, the most widely-mined cryptocurrency network, uses 122.87 Terawatt-hours of electricity every year—more than the Netherlands, Argentina, or the United Arab Emirates. According to Digiconomist, a cryptocurrency analytics site, a single Bitcoin transaction uses 2,106.37 kilowatt-hours of electricity, which equals the amount of power consumed by the average American household over 72.2 days.

Digiconomist estimates that the Ethereum network annually uses 99.6 Terawatt-hours of electricity—more power than is required by the Philippines or Belgium. A single Ethereum transaction requires 220.05 kilowatt-hours of electricity, which is the same amount of power that an average U.S. household consumes in 7.44 days.

More than 15,000 different cryptocurrencies and over 400 exchanges exist worldwide. None of the cryptocurrency energy use reports or calculations account for the energy expended to develop new coins or administer services for them.

The amount of energy consumed by cryptocurrency mining is likely to increase over time, as user adoption of crypto increases and mining efficiency decreases. Cryptocurrency mining is a competitive process, and as crypto blockchains grow longer and the competition to win crypto rewards continues to increase, the required computational power continues to rise in tandem. An increased requirement for computational power results in more energy being consumed by crypto networks.

Why Cryptocurrency Mining Requires Energy

The energy intensity of crypto mining is a feature, not a bug. Just like mining for physical gold, mining for Bitcoin or another proof-of-work (PoW) cryptocurrency is designed to use large amounts of energy. The requirements for both expensive hardware and plenty of electricity to power that hardware create barriers to entry, which in turn make it extremely difficult (although not impossible) for a small group of miners to take control of an entire crypto network.

Cryptocurrency advocates believe that this decentralized structure has many advantages over centralized currency systems, because cryptocurrency networks can operate without relying on any trusted intermediary such as a central bank. In place of any centralized authority, miners use large amounts of computational power to operate and maintain the security of a cryptocurrency network.

Environmental Impacts of Cryptocurrency Mining

According to Digiconomist, Bitcoin mining generates about 96 million tons of carbon dioxide emissions each year—equal to the amounts generated by some smaller countries. Mining for Ethereum produces more than 47 million tons of carbon dioxide emissions annually.

Researchers at the University of Cambridge report that most Bitcoin mining—around 35% in 2021—takes place in the U.S. The U.S. gets most of its electricity by burning fossil fuels. Kazakhstan, another country that gets most of its energy from fossil fuels, follows the U.S. in accounting for 18% of the world’s Bitcoin mining. As a result, two countries heavily dependent on fossil fuels are responsible for the majority of the world’s Bitcoin mining.

A study by the University of Cambridge shows that 39% of proof-of-work mining was powered by renewable energy sources.

Cryptocurrency mining also generates a significant amount of electronic waste, as mining hardware quickly becomes obsolete. This is especially true for Application-Specific Integrated Circuit (ASIC) miners, which are specialized machines designed for mining the most popular cryptocurrencies. According to Digiconomist, the Bitcoin network generates approximately 30 thousand tons of electronic waste every year.

Could Cryptocurrency Mining Use Less Energy?

Large-scale cryptocurrency miners are often located where energy is abundant, reliable, and cheap. But processing cryptocurrency transactions and minting new coins does not need to be energy intensive.

The proof-of-stake (PoS) method of validating cryptocurrency transactions and minting new coins is an alternative to cryptocurrency mining that does not use extensive computing power. The authority to validate transactions and operate the crypto network is instead granted based on the amount of cryptocurrency that a validator has “staked” or agreed to not trade or sell.

Other methods of validation, such as proof of history, proof of elapsed time, proof of burn, and proof of capacity, are also being developed. None of these methods rely on extensive computing power, which creates a clear advantage over the energy-intensive protocol known as proof of work.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.

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