Cryptocurrencies are digital currencies known for revolutionizing traditional banking, given they are decentralized, flexible, and easy to access via multiple platforms. Over the last few years, we have witnessed a massive surge of interest in Crypto, followed by considerable volatility and declines. But there is another aspect that makes Crypto controversial in many countries.

Cryptocurrency mining uses an immense amount of energy. Mining is an essential process of earning and creating a new Cryptocurrency by using arbitrary mathematical equations via proof-of-work (PoW) to prevent anybody from gaming the system.

The Cryptocurrency mining industry is enormous. According to CoinDesk, Bitcoin miners broke a more than three-year record in February 2021, as it earned almost $1.4 billion, rising 21% from January. In addition, according to a study at Columbia University, "Cryptocurrencies consume an estimated 150 terawatt-hours of electricity annually; this is more than the entire country of Argentina - a population of 45 million. Producing that energy emits some 65 megatons of carbon dioxide into the atmosphere annually - comparable to Greece's emissions - makes Crypto a significant contributor to global air pollution and climate change."

To further elaborate, according to Digiconomist, one Bitcoin transaction is "equivalent to the carbon footprint of 735,121 Visa transactions or 55,280 hours of watching YouTube" - equivalent to 53 and 127 million megatons of carbon dioxide.

There is a rise in the demand for Cryptocurrency demand, which has led to a corresponding increase in energy consumption from the mining companies to build larger facilities to cash in on the 21st-century gold rush. "When it comes to Bitcoin's energy use, it's currently something of a 'wildcatter' market. The Texas grid operator ERCOT estimates that Crypto miners may increase energy demand by up to 6 gigawatts by mid-2023, roughly the equivalent of adding another Houston to the grid." added Joshua D. Rhodes, a Research Associate at The University of Texas at Austin.

The increase of Cryptocurrency mining poses concerns for governments and corporations looking to reduce their carbon footprints per their UN Climate Change Conference (COP26) goals and strategy. However, at the same time, such countries seek to increase their investment, and their adoption of Cryptocurrencies is essential.

So how can such nations continue producing Cryptocurrencies while maintaining their goals to reduce carbon footprints?

We need to understand the mining process causing this issue to answer this question. The production of Bitcoin is finite; it has 21 million Bitcoins to be supplied and mined. The core design of Bitcoin requires massive energy consumption. It was initially able to be mined on an average computer. However, the mining process has evolved and changed the performance and the expectations from other Cryptocurrencies. The algorithm of creating/mining a new Bitcoin becomes more complicated when producing more Bitcoins. Thus an average computer can no longer solve new Bitcoin mining. Currently, over 18.5 million Bitcoins are mined, meaning mining will become more complex in the coming years. It will demand advanced computers, which consequently need a vast amount of electricity to run them.

There is still unclear about the energy sources of the Cryptocurrency miners as there is no legal body that tracks and locates the Cryptocurrency miners or classifies the energy sources used in the mining process. Whether miners use electricity fueled by renewable energy or fossil fuels is still ambiguous. However, according to a survey by The University of Cambridge Centre for Alternative Finance (CCAF), "the people who manage the Bitcoin network around the world on their energy use found that about two-thirds of it is from fossil fuels."

Currently, Cryptocurrencies production is the responsibility of corporations and miners and is not regulated by government bodies.

So how can corporations cut the energy use in Cryptocurrency mining?

According to Fortune, "If the industry takes the lead in the carbon removal field as well, it can alter its reputation from being an embattled major emitter to a responsible, carbon-neutral space. Businesses can now easily purchase carbon removal from a broad set of projects or use an API to embed negative emissions into their products." Since there are other sources of energy, there should be efforts to make the Cryptocurrency industry less energy-intensive, and it should be a priority for the mining industries. For example, such industries should change their software to become more energy-efficient and reduce computational demands.

Another option is to use other protocols for validating transfers. Now, PoW is the most widely used verification protocol. Different protocols for validating transfers can be used, such as proof-of-stake (PoS) and proof-of-authority (PoA) could also potentially accomplish validations more energy-efficiently.

Additional initiatives to consider reforestation programs, direct air capture, and other carbon sequestration methods to offset the negative carbon footprints.

References

EDITOR’S NOTE: TBG provides global solutions focused on Sustainability, Innovation and Impact. We leverage a Global Network comprised of more than 1000 experts in over 150 countries. Through TBG Consulting, TBG Global Advisors, TBG Purpose and TBG Capital, we undertake global projects — from Kenya to Kazakhstan — and transform challenges into opportunities.

Cryptocurrency Mining: The Energy Consumption Pitfall

The Bassiouni Group

Cryptocurrency Mining: The Energy Consumption Pitfall

West Virginia and its Path Towards a Greener Future

El Salvador: A Test for Bitcoin

The Bassiouni Group