The Environmental Costs of Cryptocurrency

If Bitcoin were a country, it would rank in the top 30 globally in terms of energy consumption, according to the Cambridge Bitcoin Electricity Consumption Index (CBECI). The index currently estimates Bitcoin’s annual electricity consumption (125.02 TWh) to be higher than that of Ukraine (124.5 TWh) and Norway (124.03 TWh).

The Digiconomist’s Ethereum Energy Consumption Index puts Ethereum’s annual consumption at 111.20 TWh, which is comparable to that of the Netherlands. Ethereum’s energy consumption is also rapidly increasing, having doubled since June of 2021, largely due to the wild popularity of non-fungible tokens (NFTs)

"A single Bitcoin transaction consumes 2201 kWh, ​​which is equivalent to the energy use of an average U.S. household over 75 days." — Digiconomist

To better understand these rates of consumption, let’s back up and look more closely at how cryptocurrency, specifically Bitcoin, works.

What Is Bitcoin?

New Scientist defines Bitcoin as a digital currency that relies on peer-to-peer software and cryptography. A public ledger (or blockchain) records all Bitcoin transactions, and copies of those transactions are held on servers (or nodes) around the world. “Consensus on who owns which coins is reached cryptographically across these nodes rather than relying on a central source of trust like a bank.”

To acquire Bitcoin, you can buy it, you can sell something and be paid in Bitcoin, or you can mine it. Each cryptocurrency transaction, however, involves an immense amount of processing power, with this article estimating that each Bitcoin transaction consumes more than $100 worth of electricity.

How Mining Works

Now let’s look at how mining works. CoinDesk explains it this way:

Bitcoin mining is the process of discovering new blocks, verifying transactions, and adding them to the Bitcoin blockchain. … In order to validate and add new transactions to the blockchain, miners must compete with each other using specialized computing equipment. They use their equipment to generate fixed-length codes known as “hashes.” The target hash is a random 64-digit hexadecimal code (comprising numbers 0-9 and letters A-F). 

So, miners compete to successfully generate the target hash (or nonce), and the winner receives a certain amount of newly minted Bitcoin in return. Currently, a Bitcoin block reward equals 6.25 Bitcoin (worth about $268,000 today), and a block is discovered approximately every 10 minutes.

In the beginning, notes the CBECI, generating the target hash could be done with the central processing units (CPUs) of standard computers. Today, however, the process practically requires specialized hardware, and global Bitcoin mining “is exclusively performed with millions of energy-sapping application-specific integrated circuits (ASICs) that have little to no use value outside of cryptocurrency mining.” Additionally, Bitcoin mining operations have gradually consolidated into pools, so that now a mere “seven mining groups own nearly 80 percent of all computing power on the network,” according to the New York Times.

Energy Consumption and Emissions

What does all this mean in terms of environmental costs? Cryptocurrency mining is inherently a competitive process, notes Investopedia, and as the competition to win rewards increases, the related computational power and energy use increase accordingly.

Between 2015 and March of 2021, writes Renee Cho, “Bitcoin energy consumption increased almost 62-fold.” Of this, only an estimated 39 percent comes from renewable resources—mainly in the form of hydroelectric power, according to the 3rd Global Cryptoasset Benchmarking Study

“Most Bitcoin mining—around 35% in 2021—takes place in the U.S,” which gets most of its electricity from fossil fuels, says Investopedia. Kazakhstan, which also relies mainly on fossil fuels, ranks second with 18% of the world's Bitcoin mining. This cryptomining facility in Kazakhstan, for example, houses 50,000 machines, each of which uses roughly six times more power than a regular computer. 

The Digiconomist estimates that global Bitcoin mining generates about 97 million tons of carbon dioxide emissions each year and that a single Bitcoin transaction consumes 2201 kWh, ​​which is equivalent to the energy use of an average U.S. household over 75 days. 

Globally, Cho says, “Bitcoin’s power consumption has dire implications for climate change and achieving the goals of the Paris Accord,” with one study from Nature warning that Bitcoin emissions alone could push global warming beyond 2°C.

Other Environmental Costs

Locally, cryptomining facilities can have other effects on the environment. Greenidge Generation in New York state, for example, consumes large amounts of water, says Cho. “Greenidge draws up to 139 million gallons of fresh water out of Seneca Lake each day to cool the plant and discharges it some 30 to 50° F hotter than the lake’s average temperature, endangering the lake’s wildlife and ecology.”

And, the cryptomining industry has yet another environmental problem: e-waste. The specialized hardware used by miners “becomes obsolete every 1.5 years and can’t be reprogrammed to do anything else,” says Cho. “It’s estimated that the Bitcoin network generates 11.5 kilotons of e-waste each year.”

Value vs. Cost

Bitcoin mining remains attractive because of the potential reward, despite (or perhaps because of) extreme market fluctuation. For example, Bitcoin’s value doubled within the space of a month during December 2020 and January 2021. At the time of writing, 1 Bitcoin was valued at about $43,000, as compared with its record high of nearly $69,000 in November of 2021. 

Thus, as this report notes, “the carbon footprint for Bitcoin and other cryptocurrencies will most likely grow long before improvements in US infrastructure and renewable energy can lead to reduced emissions.”

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