September 28, 2023

The Debate over Cryptocurrency Mining and Its Environmental Impact

The Debate over Cryptocurrency Mining and Its Environmental Impact

Over the past few years, headlines have shined a spotlight on the growing debate about cryptocurrency and the environment. And not surprisingly, the debate made it onto the agenda of topics discussed at COP26.

In a warming world aiming to reduce its carbon footprint, the energy consumption of cryptocurrency mining is naturally of concern — but this debate is not black and white. Steps continue to be taken to develop renewable sources, fueling a more sustainable future for crypto.

Let’s Take A Closer Look at Crypto's Use of Energy

Cryptocurrency mining, the process by which new coins are entered into circulation, is an energy-intensive process.  

According to the Cambridge Center for Alternative Finance (CCAF), Crypto currently consumes around 110 terawatt-hours per year, equating to 0.55% of global electricity production. This compares to the annual energy draw of countries like Sweden or Malaysia, which has sparked a debate on how much energy a monetary system should consume.

But there isn't a simple answer here. How much you value digital assets will depend on how it influences your life and how much value you think it creates for society. Many argue that cryptocurrency and the use of blockchains is a better technology for central banking purposes, making its energy use worth it. This is especially true for those using crypto to hedge against inflation, monetary repression, and capital controls.

The other argument is that crypto mining is the only profitable energy use that does not need to be located near human settlements. Crypto mining can operate anywhere because of wireless connections and satellites. This means that remote areas can harness clean, renewable energy sources, including moving water. Many Holders understand the future of mining is in hydro, not fossil fuels. This could lead to abundant cheap, clean energy for people around the globe.

Energy Consumption Does Not Equal Carbon Emissions

Crypto's energy consumption is easy to estimate, but its carbon emissions are not.

“There's a key difference between how much energy a system consumes and how much carbon is emitted. For example, if mining is being run by hydro, one unit of hydropower will have far less of an environmental impact than energy powered by fossil fuels.”  

– Victor Cook, Chief Technology Officer at RockWallet

The breakdown of energy sources used to mine cryptocurrency is currently estimated. Datasets are often out-of-date and do not include all mining pools. In a 2019 report, it was estimated that 73% of crypto's energy consumption was carbon neutral. This is due to the use of hydropower across major mining hubs, including those found in southwest China. Other estimates are closer to 39%, which is still nearly twice as much as the U.S. grid.

So, although power consumption is exceptionally high, you can't use these figures to determine carbon emissions created by Bitcoin mining.

China has already shown the potential for renewable energy — even though the Chinese Government does not support crypto mining. China hosts around 75% of the world's cryptocurrency mining capacity, and in 2017, the country began to "crackdown" on cryptocurrency. This was not based on environmental concerns but on financial stability and the Government's lack of control. In southwest China's Sichuan province, the annual spring and summer rainfall brings an opportunity to miners. Since energy consumption is a significant overhead for those in the industry, miners gather at Sichuan's hydropower stations. These are dormant plants, and instead of just letting the water flow away, they harness their power.

This is an example of how renewable energy can help offset carbon emissions often associated with high energy consumption rates.

The Geography of Cryptocurrency Mining Is Changing, Altering its Environmental Impact

Data from Cambridge University shows how the geography of mining has changed.

In May 2021, Beijing intensified the crackdown on both mining and trading. Just like that, more than half of the hashrate, the collective global computing power of miners, dropped off the network. In response, miners are heading to the cheapest sources of energy — which tend to be renewable. Based on China's new crypto rules, older, energy-inefficient gear was taken offline as well. This will help offset crypto's carbon footprint.

Chasing cheaper, reliable energy, the United States quickly became the new global crypto mining hot spot. Remember, energy consumption is not equivalent to carbon emissions, and the rising American cryptocurrency market is pushing for greener sources.

As of 2020, data shows that the most common renewable energy sources are either equal to or less expensive than coal and gas. It's estimated that renewables power more than 50% of crypto mining in the U.S.

But not all blockchains are the same. According to a report from Canada's fifth-largest professional services firm, MNP, BSV is much more energy-efficient than BTC and actually requires less energy as the size of the block increases, whereas the opposite is true of BTC, which requires more energy as the network scales.

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