What is the Environmental Impact of Cryptocurrencies?: Part-I

Cryptocurrency is a virtual currency marketed as a solution to eliminate all expenses borne by money users and suppliers while putting control in the hands of the people. However, bitcoin requires electricity, technology, the internet, and a worldwide networking infrastructure to function. As a result, it has a significant environmental impact, with some consuming as much energy as small nations to run a blockchain.


There are also concerns concerning cryptocurrency's water footprint. Continue reading to discover more about how cryptocurrency affects the environment.

Cryptocurrency Energy Consumption

There is no direct way to quantify the amount of energy consumed for Bitcoin and cryptocurrency mining, although it may be estimated based on the network's hashrate and the consumption of commercially available mining rigs.


According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin, the most widely-mined cryptocurrency network, consumes an estimated 140 Terawatt-hours (TWh) of electricity per year (0.63% of global electricity use) and approximately 352 TWh of energy (0.22% of global energy production) at the point of production—more than Pakistan and Ukraine, according to the most recent country energy estimates for 2019.


Another estimate from Digiconomist, a cryptocurrency analytics website, put the value at 138 Terawatt-hours based on energy use until December 11, 2023. This amounted to around 773.61 kilowatt-hours of electricity each transaction, or the same amount of power utilized by the average American family over 26 days. 5. Digiconomist. "Bitcoin Energy Consumption Index."
Ethereum, the second-largest cryptocurrency network, is expected to consume 0.01 Terawatt-hours of electricity every year through December 11, 2023. The typical Ethereum transaction used 0.02 kilowatt hours of power. 6. Digiconomist. "Ethereum Energy Consumption Index."



There are thousands of different cryptocurrencies and hundreds of exchanges globally. None of the cryptocurrency energy usage statistics or estimates take into account the energy required to create new currencies or provide services for them.

The quantity of energy needed by cryptocurrency mining is anticipated to fluctuate over time, given that prices and user acceptance continue to change.

Cryptocurrency mining is a competitive process: as the value of the block reward grows, so do the incentives to start mining. Higher cryptocurrency values result in increased energy required by crypto networks as more individuals join mining networks to profit from the rises.

Why does cryptocurrency mining require energy?

The energy intensity of cryptocurrency mining is a feature, not a flaw. Bitcoin mining is an automated process that validates Bitcoin transactions without the involvement of trusted third parties such as banks. The way the transaction validation procedure is built consumes a lot of energy—the network relies on the processing capacity of thousands of computers. This dependence ensures the security of cryptocurrency blockchains based on proof-of-work consensus.

Not All Cryptocurrencies Use Mining

It is crucial to note that not all cryptocurrencies operate on a system that requires a lot of energy to function. Ethereum, Solana, and many others employ a system that consumes relatively little energy—their environmental effect adds little to the damage already caused by the global networking infrastructure and its everyday use.

The Bottom Line

The Bitcoin network and other cryptocurrencies consume significant amounts of energy. Proponents argue that it is justifiable since virtual currencies provide financial systems to millions of individuals who do not have access to loans, banks, or other services. Some opponents argue that bitcoin is a waste of energy since it has no value. Others claim that cryptocurrency mainly benefits those who can afford expensive mining equipment, mostly enterprises and the already rich.

Regardless of whether supporters or critics agree, bitcoin has an influence on the environment. It uses energy mostly from fossil fuels. At a time when the world desperately needs to reduce its carbon footprint, the last thing anyone wants is another source of profit at the expense of the earth and its inhabitants.

RESOURCES

Jiang, S., Li, Y., Lu, Q. et al. Policy assessments for the carbon emission flows and sustainability of Bitcoin blockchain operation in China. Nat Commun 12, 1938 (2021). https://doi.org/10.1038/s41467-021-22256-3



Written by Hass McCook for Bitcoin Magazine



UNM researchers Jones, Goodkind & Berrens