FAQ: Cryptocurrencies, pollution, and climate change

You must’ve heard it already: cryptocurrencies aren’t very eco-friendly. They have a bad environmental impact, they’re increasing climate change, they’re “an environmental disaster” [Agustin Carstens], and so on. Is all this true? Cryptocurrencies are producing pollution and contributing to climate change?

Recently, Tesla stopped accepting BitcoinBitcoin is the first decentralized digital currency. It was created in 2009, by an anonymous founder or group of founders... More (BTCAn abbreviation for Bitcoin.) payments for considering it “a great cost to the environment”. How could this be? They’re digital, right? They’re not exactly spitting black smoke into the clear sky. Well, now it’s time to solve all your doubts about this.  

Cryptocurrencies = pollution? Why?

For starting, not every cryptocurrencyA digital currency running on a blockchain and built with cryptography. Contrary to central-bank issued currency, cryptocurrency issuance rules are... can produce pollution. The real issue comes from Proof-of-Work (PoW) mining. This one is an algorithm, and by “algorithm” we mean a set of steps and methods that are built (with math) to achieve a specific result or solve a problem. That’s exactly what the PoW does: developing a difficult math problem or riddle that the miners must solve in order to verify virtual transactions and “extract” some coins.

The miners compete with the others to “find” the coins first, and their total computational power helps to secure the network. Still, it doesn’t sound very contaminating, right? Well, the problem is that riddle. Nobody can really solve it at the speed required to compete. Only the computers and some specialized devices (ASIC miners) can do it. And not alone: they require a lot of electricity to try again and again until hitting the solution. Hence the “work” in the proof.

So, in case you didn’t know, a lot of electricity is usually equal to more pollution, depending on where that energy came from. Coal and other fossil fuels are common sources of electrical power worldwide. Therefore, if the energy to mine cryptocurrencies comes from coal, that’d mean more damaging emissions to the planet.  

On the other hand, we have ASIC machines. They were specifically designed to mine cryptocurrencies and nothing else. However, they won’t last a lot of time, because the difficulty of mining cryptos is always increasing with the number of miners that join the network (for security reasons). Once the useful period ends (around 1.5 years), they can become e-waste and, basically, adding more cryptocurrencies’ garbage to the pile of pollution.

Of course, this only happens with PoW cryptocurrencies. Other systems, like Proof-of-Stake (PoS), don’t have this mining problem.

What cryptos produce pollution and which ones don’t?

That’s a complicated answer. Even in the case of PoW cryptocurrencies, everything depends on the energy source and the alternative uses for ASICs. Most miners choose locations where the dominant energy source is renewable, and some of them are already using their ASICs for additional functions, like heating or growing tomatoes (really).

We can also consider that there are “lighter” PoW versions. They don’t require ASICs to work, only computers, and the energy consumption is moderate. That’s the case for Monero (XMR), for example. Contrary to it, Bitcoin is still the hardest coin to mine and requires a lot of energy and ASICs. That’s why its miners usually choose the cheaper renewable sources.

According to CryptoSlate, there are over 406 PoW coins. They include several of the most popular: Bitcoin, Litecoin (LTC), Bitcoin Cash (BCH), Ethereum (ETH), Dogecoin (DOGE), Zcash (ZEC), and Monero (XMR). On the other side, there are over 546 PoS-like coins, including Cardano (ADA), Polkadot (DOT), Stellar (XLM), Cosmos (ATOM), Tron (TRX), Tezos (XTZ), Lisk (LSK), DASH, XRP, and EOS.

How much energy are PoW cryptos consuming?

We can’t know it for sure, but we have some overviews for Bitcoin. According to the Cambridge Bitcoin Electricity Consumption (CBEI), Bitcoin is consuming around 148 TWh annually, which is more than Sweden, Ukraine, or the Netherlands. For its part, Digiconomist calculates a figure around 117 TWh annually.

At the same time, as described by the CBEI, Bitcoin only accounts for 0.69% of the total energy consumption worldwide. Besides, “the amount of electricity consumed every year by always-on but inactive home devices in the USA alone could power the Bitcoin network for 1.5 years”. Comparing it with other “forms of money”, we can also say that the banking industry consumes over 639 TWh annually and gold mining consumes over 139 TWh annually.

Beyond Bitcoin, Ethereum consumes around 48 TWh annually [Digiconomist]. Additionally, last month, the firm TRG Datacenters calculated the number of kWh consumed per transactionA cryptocurrency transaction is an entry on the blockchain ledger, noting sender, receiver and number of coins transacted. in different cryptocurrencies.

As we’ll see later, energy consumption has a lot to do with pollution and climate change.

Where it comes from the energy to mine cryptos?

As we mentioned before, the miners usually choose the cheaper renewable sources. The firm CoinShares calculated that over 74% of Bitcoin mining uses renewable energy sources, such as hydroelectric, solar, and geothermal. On the other hand, the CBEI states that 65% of Bitcoin mining it’s been making in China. In this country, coal accounted for 56.8% of domestic energy generation in 2020 [CNBC]. And that’s bad news for cryptocurrencies and pollution.

Nevertheless, there are alternatives theories. Before talking about it, we should learn what is non-rival energy. “Non-rivalrous goods are public goods. Everyone has access to use them, and their use does not deplete their availability for future use” [Askinglot]. In the energy sector, it usually means surplus (and wasted) energy that nobody will use because the demand is already filled.

So, speaking of the China miners, they operate in some specific provinces: Xinjiang, Sichuan, Inner Mongolia, and Yunnan [CBEI]. The energy is overabundant and partly renewable in there. Therefore, it’s probable that most Bitcoin miners in China are using non-rival energy, as was described by Nic Carter, co-founder of Coinmetrics.

As for the rest of the PoW coins, we can only take guesses. For example, most of the mining nodes of Litecoin are in the United States, Germany, and France. In these countries, the renewable energy accounts for 20% [EIA], 46.3% [Reuters], and 33.2% [Renews], respectively.

Why Bitcoin (and others) doesn’t change the mining?

That sounds like an easy solution, right? Why PoW coins aren’t abandoning this system and replacing it with PoS? Well, it’s not that easy, indeed. First of all, let’s remember what Proof-of-Stake is. In PoS systems (and coins) the figure of the “minerMiners secure some blockchain networks by ordering crypto transactions into blocks and verifying the blocks of other miners. For this...” is replaced by the “validator”. This validator, which can be anybody who wants to, won’t need energy or specialized machines. Instead, what they’ll do is locking inside a special walletA crypto wallet is a user-friendly software or hardware used to manage private keys. There are software wallets for desktop... a certain amount of native tokens that they previously acquired. 

So, they’ll obtain the right to verify transactions and mint new coins, if necessary, and almost automatically. And they’ll be rewarded for it, as a passive income. But not everything is perfect.

There’s a risk that some skilled developer copies (forks) the blockchainBlockchain is a type of database storing an immutable set of data, verifiable to anyone with access to it —through... and jumps between the original chain where they already spent the money and the new chain where they didn’t, for example (and double-spend the same coins). There’s no “work” to verify the transactions here, only stakeholders. This is dubbed the “Nothing-at-Stake Problem” because, in the new (copied) chain, there’s nothing to lose if you cheat.

So, PoW systems are still more robust and secure. That’s why most developers and users are still holding to PoW, despite its drawbacks. Ethereum is a different case, though. It’s already in the process to abandon PoW and embrace PoS. In the future, another system, better than PoW or PoS could appear. In that case, Bitcoin and other cryptos would probably migrate into that system.  

Are cryptocurrencies increasing climate change?

Energy consumption leads us to the carbon footprint (pollution), which can lead to climate change in the long term. BlueSkyModel calculates that, on average, one kilowatt-hour produces a little over one pound (0.45 kg) of carbon dioxide (CO2). Considering this and the data by Digiconomist, Bitcoin would be producing around 55.86 Mt CO2 annually.

On the other hand, the banking industry consumes about 639 TWh annually. Then, this industry alone would release around 319.5 Mt CO2 into the atmosphere. Gold mining, for its part, consumes about 138.9 TWh per year, which translates into 69.4 Mt CO2. The total emissions for global livestock are even more amazing: 7.1 Gt CO2 annually [UN FAO]. But we need to eat. So, everything is about perspective.

According to Columbia Climate School, “Scientists say that if CO2 doubles, it could raise the average global temperature of the Earth between two and five degrees Celsius” by the end of this century (2100). However, Bitcoin and cryptocurrencies are far from being the main problem in the pollution of the planet.

Is there a solution to the PoW problem?

This is a work in progress, but there are several initiatives for mining with renewables. Late last year, the company Square announced the creation of the Bitcoin Clean Energy Investment Initiative. They’re aiming to make this industry a zero-carbon contributor.

In the same vein, last month, the Norwegian energetic giant Aker Solutions announced the creation of Seetee, a new crypto-focused subsidiary. They’re also meaning to promote Bitcoin mining with renewable sources.

As for the e-waste caused by obsolete ASICs, it’s still a problem that needs more attention. Some people have suggested reusing them in projects like Folding@home by Stanford. The goal here is to provide computational power to their systems, in order to simulate protein dynamics and so develop new therapeutics for a variety of diseases. They’re focusing on COVID-19 right now.

It’s difficult to know what will bring the future. But cryptocurrencies are preparing themselves, including the pollution part.

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