Energy use is so high that some ask: Is crypto bad for the environment? But environmentally friendly crypto mining is possible.
What you will learn
A study on environmental impact found that Hedera is the greenest proof of stake network.
Ethereum cut its energy consumption 99% when it switched from proof of work to proof of stake.
The key to making crypto mining greener is how the electricity it uses is generated.
The more mining pools that work where renewable energy is used, the better.
Cryptocurrency mining is often criticized for its high energy consumption. One Bitcoin transaction is estimated to cost 1,380 kWh, almost the same amount a U.S. household consumes in 42 days.1 The energy consumption is so high that it leads some people to ask: Is crypto bad for the environment?
But environmentally friendly crypto mining is possible. Developing a cleaner industry includes the use of renewable energy sources, energy-efficient mining hardware, and green cryptocurrency mining pools. In this article we will look at the effect of cryptocurrency on the environment and what's being done about it.
The two largest cryptocurrencies on the market are the pioneering megalith Bitcoin, with a market cap of $373 billion. That is more than double the second currency: Ethereum with a market cap of roughly $163 billion.
Both cryptocurrencies operate off their unique blockchains. Blockchains store data through distributed ledger technology. Meaning that the data stored in new blocks must be validated and then distributed through the network.
This process ensures that there’s no double-spending within the blockchain network. People can’t misuse the coins because fraudulent behavior is flagged by the collective. Different methods, called “consensus mechanisms,” can be used to authenticate new data.
Proof of work (PoW) was the original consensus mechanism. In proof of work, everyone is welcome to validate the data before the new block is added. The first person to succeed, by solving a complex problem, is rewarded. This process of validating information and then being rewarded is “mining.”
Currently, the reward for solving Bitcoin’s block puzzle is 6.25 Bitcoin, with one Bitcoin presently sitting at roughly $20,000. The average time to validate a block is about 10 minutes, before the race to crack the next code begins.
So, profit can be massive. But the competition is stiff. And the more people racing to crack the block’s code, the more difficult the code becomes. And the more electricity and computational power needed to crack it.
POW mining is effectively a competition of processing power. Crypto mining farms hold entire warehouses of computers, all trying to crack Bitcoin’s newest code and earn the reward.
The computers used in mining networks are becoming more and more specialized, called Application-Specific Integrated Circuit, or ASICs. With ASICs swiftly outpacing each other, there’s an estimated 38,000 tons of electronic waste coming from Bitcoin mining alone.
The environmental consequences of these mining rigs are huge. Climate activists note that cryptocurrency transactions are boosting greenhouse gas emissions because of their vast electricity consumption. Some estimates say that this mining contributes more to climate change than entire countries. Bitcoin’s annual energy consumption for 2021 was 104.89 terawatt hours, exceeding the 2019 energy consumption for Latvia and Iceland, combined.2 For context, the U.S. used an estimated 3,930 TWh in 2021.3
Traditional finance has its own issues, operating out of large and energy-demanding data centers. One study suggests that Bitcoin’s energy use is less than half of the global banking system. But Bitcoin is far from replacing traditional financial systems. As a result, it’s not reducing banking’s energy consumption, but adding to it.
There’s no question that crypto mining has environmental impacts, but what are the ways they can be reduced?
Thankfully, the PoW system isn’t the only way to validate cryptocurrency transactions. It’s possible for cryptocurrencies to transition from proof of work to the less energy intensive proof of stake (PoS) system.
Ethereum demonstrated this through its “Merge” transition, finalized in September. The blockchain giant, the leading chain for smart contract development, shifted from PoW to PoS as its consensus mechanism. Ethereum network’s energy consumption dropped from 93.98 TWh a year to an estimated annual 0.01 TWh. In other words, energy consumption fell by 99%.
Proof of stake is a consensus algorithm that doesn't require the free-for-all arms race involved in proof of work. There is no need to burn energy to solve complex PoW problems. All potential PoS miners put up a stake of whatever native currency they’re mining for. Then, one of the staked participants gets selected individually to mine for the block. After they’ve finished, the block gets fact-checked by the collective.
Who gets to mine for PoS depends on the coin you mine for. The selection process varies from fully randomized to being dependent on how much coin a miner has staked, or how long a miner has been staking. This stake can be used against you if you don't validate the block, or if you tamper with the data.
In 2021, the Centre for Blockchain Technology at the University College of London evaluated different blockchains for environmental impact. Hedera, with 0.04 Wh per transaction, scored as the greenest, with the next-greenest, Algorand, using 5.34 Wh per transaction. Our energy use is lower than all the other PoS networks, non-PoS networks (like Bitcoin) and non-decentralized programs, like Visa.
With Hedera network’s throughput of over 2.5 million transactions a day, the average energy cost per transaction is 0.00017 kWh. (This is estimated to equal less than .00003 kilograms of carbon dioxide).
In comparison, the average Bitcoin transaction consumes 1,737 kWh, producing 825 kilograms of carbon dioxide. And the average Ethereum transaction consumes 134 kWh, equating to nearly 64 kilograms of carbon dioxide produced.
Shifting to proof of stake massively reduces the carbon footprint of mining. Couldn’t Bitcoin follow suit? Well, to change to a PoS system, there’d have to be a “fork” within Bitcoin. Essentially, it’d be a split in which 51% of crypto miners agreed to change from PoW to PoS.
But Bitcoin’s worth comes from its reliability, most people value the code integrity above anything else. Beyond fixing bugs in the code, very little to Bitcoin ever changes.
Still, Bitcoin and other PoW-based cryptocurrencies don't have to be bad for the environment. Coins can get greener. The biggest issue is where the electricity consumed in mining comes from.
By 2023, it’s expected that 40% of the global hashrate (mining’s collective computing power) will come from the U.S. According to the International Energy Agency, only around 12% of electricity produced in the U.S. in 2021 used renewable energy.
Instead, most of the energy consumed was generated through the consumption of fossil fuels. For example, crypto mining in a setting dependent on natural gas emits more carbon dioxide, contributing to global warming.
Clean energy means green mining. The more mining pools that opt to work where there's wind power or other renewable energy sources available, the better.
The Bitcoin Mining Council, a global forum of miners and other industry groups, reported in June 2022 on energy usage. A BMC survey found that Bitcoin mining operations were using electricity with a 66.8% sustainable power mix. Based on that data, the BMC estimated that the global bitcoin mining industry’s sustainable electricity mix is 59.5% — up about 6% year-on-year.
Carbon neutrality in crypto isn’t just about mining. And Hedera isn’t just about going carbon neutral.
Energy consumption only increases as new nodes are added to the Hedera network. But, using third-party assessment provider Terrapass, Hedera’s carbon dioxide emissions are compensated for quarterly through carbon offset purchases. Hedera ensures its network is energy efficient and environmentally friendly by aiming not to be carbon neutral, but carbon negative.
In the UCL study on environmental impact we mentioned, Hedera didn’t outstrip five other P0S-based DLT systems on energy consumption alone. The UCL team used a mathematical consumption model that predicts expected energy consumption per transaction, as a function of network load. While concluding that Hedera was the greenest of the bunch, it also noted that Hedera had the most transactions per second. Our 48.20 tx/sec was more than 5 times better than the next system. Plus, Hedera’s maximum transactions per second — 10,000 — was more than 3 times better and the nearest competition. Click the link to download the full UCL report.