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 consumes about 699 kilowatt hours (kWh), enough to power an average U.S. household for about 24 days, according to the Bitcoin Energy Consumption Index. The index is maintained by Digiconomist, a tech information platform founded by Alex de Vries. Estimates for Bitcoin's power consumption vary widely, but they're enough to prompt many people to ask: Is crypto bad for the environment?
Bitcoin advocates say that environmentally friendly crypto mining is possible. Bitcoin miners are working to develop a cleaner industry through the use of renewable energy sources, energy-efficient mining hardware, and green cryptocurrency mining pools. Others in the cryptocurrency world are developing and refining more energy efficient ways to manage cryptocurrency.
In this article, we will look at the effect of cryptocurrencies on the environment and what's being done about it.
The two largest cryptocurrencies on the market are the pioneering goliath Bitcoin, with a market cap of $1.32 trillion as of Nov 2024, and Ethereum, with a market cap of roughly $315 billion. Each of these cryptocurrencies operate from 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.
Different consensus mechanisms are used to authenticate new data. One of their functions is to make sure there’s no double-spending within the blockchain network. People can’t misuse the coins because fraudulent behavior is flagged by the collective.
Proof of Work (PoW) was the original consensus mechanism for Bitcoin, which still uses it. In Proof of Work, there is open competition to validate each new block in the chain. The competitors race to be the first party to solve a complex problem, which gives them the right to validate a block and receive a reward. This process of validating information and being rewarded is “mining.”
As of October 2024, Bitcoin’s reward per block was 3.125 Bitcoins, with one Bitcoin worth roughly $65,000. The average time to validate a block is about 10 minutes, and then the race to crack the next code begins.
So, profit can be massive. The annual income for worldwide Bitcoin mining is estimated to be more than $11 billion. But the competition is stiff. The more miners there are trying to crack the block’s code, the more difficult the code becomes. And that tends to increase the electricity usage and computing power needed to crack it.
Miners have as much incentive as anyone to control energy consumption, because electricity costs eat into profits.
Processing power largely determines success in PoW mining. Crypto mining farms comprise entire warehouses of computers, all trying to crack Bitcoin’s newest code and earn the reward.
The computers used in mining networks, called Application-Specific Integrated Circuits, or ASICs, are becoming more and more specialized. As ASICs swiftly outpace each other and miners buy the latest equipment, Bitcoin mining generates an estimated 38,000 tons of electronic waste a year. That's part of an estimated 40 million tons of e-waste created each year, according to the U.S. Environmental Protection Agency.
Climate activists say that cryptocurrency transactions boost greenhouse gas emissions because of their vast electricity consumption. The U.S. Energy Information Administration estimates that annual electricity use from cryptocurrency mining represents from 0.6% to 2.3% of U.S. electricity consumption. The Bitcoin Mining Council, a global forum of miners and other industry groups, estimates that global Bitcoin mining consumes 0.21% of the world's energy production.
Traditional finance has its own issues, operating out of large and energy-demanding data centers. One study of Bitcoin energy consumption suggests that the global banking system uses more than twice as much energy as Bitcoin. However, Bitcoin is far from replacing traditional financial systems, so it's not reducing banking’s energy consumption but adding to it.
There’s no question that mining operations have environmental impacts, but what can be done to reduce that impact?
The PoW system isn’t the only way to validate digital currency transactions. Cryptocurrencies can transition from Proof of Work to the less energy-intensive Proof of Stake (PoS) system.
Ethereum demonstrated this through its “Merge” transition, which was completed in September 2022. The blockchain giant, which is 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 about 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 in 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.
The PoS selection process for picking miners varies according to the cryptocurrency involved. It could be fully randomized, for example, or could depend on how much coin a miner has staked or how long a miner has been staking. The stake can be used against a miner who doesn't validate a block or tampers with the data.
In 2021, the Centre for Blockchain Technology at the University College of London evaluated different blockchains for environmental impact. Hedera, with 0.02 Wh per transaction, scored as the greenest. The next-greenest, Algorand, was rated at 5.34 Wh per transaction. Our energy use is lower than that of all the other PoS networks, non-PoS networks (like Bitcoin), and non-decentralized programs like Visa.
With the 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 0.00003 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, which is nearly 64 kilograms of carbon dioxide produced.
Shifting to Proof of Stake massively reduced Ethereum's carbon footprint from mining. Couldn’t Bitcoin follow suit? Well, that would require Bitcoin to create a fork in its blockchain. Essentially, it’d be a split in which 51% of crypto miners agreed to change from PoW to PoS.
But too many people have a vested interest in the current system, and there are concerns that the change would damage Bitcoin’s integrity and reliability.
Bitcoin and other PoW-based cryptocurrencies don't have to be bad for the environment. Coins can get greener.
According to the International Energy Agency, about 21% of electricity produced in the U.S. in 2022 used renewable energy. Most of the energy consumed was generated with fossil fuels and nuclear power.
One of the biggest issues for crypto is where the electricity consumed in mining comes from. For example, crypto mining in a setting dependent on natural gas emits more carbon dioxide than mining that’s based on hydroelectric power.
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's 2023 report on Bitcoin’s energy usage found that its mining operations use a small amount of global energy (0.21%) and generate negligible carbon emissions — 0.135% of the world's CO2 production. On top of that, the BMC stated that Bitcoin is the industry leader in sustainability with a 59.9% sustainable energy mix.
Sustainability has become a major focus for blockchain and cryptocurrency development, particularly as pressure mounts from environmental regulations and rising concerns over climate change. More mining companies are exploring eco-friendly practices by using alternative energy sources like solar and wind power. This shift to renewable resources aims to reduce the environmental cost of cryptocurrency and make mining more sustainable.
New green technology innovations also aim to enhance energy efficiency in mining hardware, reducing overall electricity usage. Some initiatives have implemented carbon offset programs, allowing cryptocurrency networks to neutralize their carbon emissions by investing in renewable or carbon-neutral projects.
The push for sustainable mining practices addresses the environmental impact and has significant financial implications. Investors are increasingly aware of the investment risk posed by high-energy-consuming blockchains, particularly as regulatory measures tighten. By shifting to sustainable and energy-efficient methods, cryptocurrencies can reduce their financial impact on the broader economy and align with global trends toward environmental sustainability.
As market trends evolve, the shift toward more sustainable mining operations is expected to strengthen, promoting the long-term viability of digital currencies in financial markets.
Carbon neutrality in cryptocurrency trading isn’t just about mining. And Hedera isn’t just about going carbon neutral.
Energy consumption may increase 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 mentioned earlier, Hedera outstripped competing systems in other areas beyond energy consumption. 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 than the nearest competition.
Hedera not only operates in a responsible way, we enable developers the power to build, deploy, and access sustainability solutions that take full advantage of our low energy network, with world class governance. Startups, enterprises, and government organizations are building the next generation of sustainability solutions on Hedera.
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