Is crypto trashing the planet? Digital assets such as Bitcoin depend on so-called miners whose giant server farms guzzle electricity day and night to run the networks that support them. The industry’s carbon footprint has grown so fast that it’s alarming climate campaigners, governments and other big energy users. China banned crypto mining in 2021, and Elon Musk stopped accepting Bitcoin as payment for his Tesla electric cars. When Bitcoin rival Ethereum slashed its power consumption in a major upgrade in September, it put pressure on other parts of the crypto world to clean up their act.
1. How much energy does crypto use?
Bitcoin’s estimated power use soared from an annual rate of 14 terawatt-hours in 2017 to 105 terawatt-hours in 2021 -- more than the entire domestic consumption of Belgium -- according to the Cambridge Centre for Alternative Finance, which keeps a running estimate. It expects that demand declined in 2022, when a plunge in the value of crypto assets pushed some miners out of business. However, research platform Digiconomist projected that the pollution created by generating electricity for crypto would still amount to around 64 million metric tons of carbon dioxide in 2022, more than the annual global emissions avoided through the increased use of electric vehicles.
2. Why does crypto need so much energy?
To order transactions on a blockchain, Bitcoin and many other networks use an algorithmic process called “hashing.” This produces a number that miners compete to guess in a brute-force effort that can involve trillions of tries. The first to succeed is rewarded with newly issued coins in a process known as “proof of work.” As more miners enter, the guessing is made more difficult, forcing them to invest in ever-more-powerful machines. Many miners now have thousands of computers toiling away in cavernous warehouses.
3. How are miners trying to cut their carbon footprint?
Some have set up shop in places like Norway and Texas, where there’s often plenty of emissions-free solar, wind or hydro power. Miners say their presence encourages the development of those clean power sources by helping to balance grids -- buying up surpluses of renewables when they’re abundant and switching off their banks of computers when electricity demand threatens to exceed supply. Some miners have put solar panels on top of their server halls or struck deals to buy low-carbon nuclear power. Others are sourcing power from surplus natural gas that would otherwise be “flared,” or burned just to dispose of it.
4. So is crypto becoming greener?
It’s hard to tell. A February 2022 study in the research journal Joule estimated that Bitcoin’s environmental impact worsened after China’s mining ban, with the share of renewables used to power the network falling from more than 40% in 2020 to about 25% in August 2021. Some miners relocated to be near zero-carbon power sources after the ban, while others popped up in places where coal still dominates the energy mix. The picture was clouded further by the “crypto winter” of 2022, which led to the demise of some less-efficient mining operations.
5. How are governments responding?
Some are pushing back against crypto mining to protect their environmental targets and the stability of their power networks. China’s ban was a response to electricity shortages that forced the government to cut industrial output. Iceland, Iran, Kosovo and Singapore have also restricted crypto mining. The European Commission urged member states in October to end tax breaks for miners, and to be ready to shut them down, in response to the region’s energy crisis. Some governments would prefer to reserve renewables for older, energy-intensive manufacturing industries that are trying to decarbonize.
6. Is crypto’s carbon footprint a turnoff for users?
It’s prevented some large companies and investment funds that are committed to fighting climate change from investing in crypto. Ethereum’s switch to a new system known as “proof of stake,” in which people offer up, or stake, some of their tokens for an opportunity to order and validate blocks of transactions, cut its power use by more than 99%. Ethereum’s backers are hoping this will change the minds of developers who had avoided using the platform for finance, gaming and other applications due to its big carbon footprint.
7. What does this mean for Bitcoin?
Climate activist groups have called on Bitcoin’s backers to find their own low-energy technology, but many of the token’s die-hard supporters are against meddling with the system. And it’s not clear who would lead such a change. The Ethereum switch was initiated by the Ethereum Foundation, which was established to ensure the token’s long-term success. A number of organizations advocate for Bitcoin, but it has no one clear leader.
--With assistance from Eric Lam, Olga Kharif and Josh Saul.
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