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Is Cryptocurrency Impacting the Environment?

7 Minute Read

A common criticism of the cryptocurrency industry is that consumes a lot of energy, which impacts the environment. Green advocates often point to the Bitcoin mining facilities as proof of the connection between cryptocurrency and climate change. Some reports suggest a few blockchains, such as Bitcoin (BTC), use more electricity than entire countries.

However, other cryptocurrencies expend less energy than a Google Query. In fact, most of the energy concerns people have about cryptocurrency only relate to the Bitcoin Network. There are many new blockchain technologies like proof-of-stake (PoS) that eliminate the energy concerns posed by Bitcoin. Read on to learn about this nuanced topic. 

How does blockchain mining work? 

Before we delve into crypto’s environmental impact, let’s review the proof-of-work (PoW) consensus mechanism, which is the primary driver of environmental impact. Although not every virtual currency uses PoW, this algorithm is the most energy-intensive in the crypto industry. 

In PoW, cryptocurrency miners use large computers called “rigs” to solve complex algorithmic problems. The first computer to solve one of these puzzles gets to validate the next “block” of transactions on the crypto’s blockchain. In other words, computers have to “prove” they put in the electrical “work” before they can confirm crypto transfers on the network. 

By design, cryptocurrencies that have a PoW algorithm will use a lot of energy. The greater the hash power a mining pool adds to a blockchain, the greater the odds they’ll get the block reward, incentivizing greater energy consumption. As the price of the crypto increases, there’ll be more competition and thus more Bitcoin mined. This indicates that PoW is an inherently competitive strategy, but it’s also a cause of concern in the eco-conscious community.

How does Bitcoin affect global warming? 

Because Bitcoin is currently the largest cryptocurrency that uses PoW mining, it has drawn the most criticism from environmental advocates. Bitcoin mining contributes the most to climate change, but gauging exactly how much BTC affects CO2 levels isn’t easy. 

While estimates on fossil fuel usage in crypto mining vary, reports from the Cambridge Centre for Alternative Finance (CCAF) suggested fossil fuel accounted for more than 62% of Bitcoin’s energy output in 2021. The organization cited Bitcoin used roughly 110 TWh per year as of 2022, which is the same annual amount of energy Malaysia or Sweden currently uses. However, comparing Bitcoin’s energy consumption with countries’ can be misleading, as many countries outsource their energy-intensive industrial sectors to other countries such as China. 

Aside from greenhouse gas emissions, blockchain mining puts a strain on electricity resources. It costs electrical power to run mining rigs, and these machines generate heat whenever they’re on. Large mining operations need cooling units to keep their rigs from overheating. 

Lastly, crypto mining creates a significant amount of non-renewable waste. When a mining rig is no longer useful, it usually ends up in a landfill. Analysts at StockApps reported that Bitcoin mining creates 30.7 kilotons of e-waste yearly, which is roughly the same amount produced by countries like Luxembourg or Samoa. 

Counterarguments to energy usage

However, many involved in crypto mining argue that Bitcoin rigs use less energy than many household appliances. For example, household dryers use a combined 100 terawatt-hours (TWh) of energy annually in the U.S., which is roughly equivalent to the global energy use on the Bitcoin blockchain. 

There are also cases where crypto mining uses energy that would otherwise go to waste or cause pollution. For example, many BTC miners in Texas power their mining rigs via flare gas, a natural byproduct of the oil drilling process that contributes to CO2 emissions. Some Bitcoin companies discovered they could divert this gas to power ASIC rigs, thus putting energy that would otherwise pollute the environment to use. 

As more Bitcoin miners study innovative strategies that use renewable resources, they’ll more likely gravitate toward these solutions. The less BTC miners spend on energy consumption, the greater profit they could make from their operations. Therefore, miners have an economic incentive to look into the most renewable energy sources. 

How does crypto mining compare with other financial industries? 

Crypto supporters don’t deny that PoW mining consumes a large amount of energy, but they often point to energy consumption across other financial industries. Since virtual coins can serve as alternatives to precious metals and banking services, it’s constructive to compare Bitcoin pollution with that of traditional financial sectors.

Studies conducted by DePaul University suggest gold mining produced 145 megatons of CO2 and about 265 TWh of electricity in 2020, which are higher than Bitcoin’s current mining statistics. Alternatively, Valuechain’s data suggests Bitcoin’s energy consumption is far less than the global banking sector. According to this research, the energy used to create, transport, and maintain multinational banks is roughly 4,981 TWh annually, contributing to 400 megatons of CO2 yearly. 

Which cryptocurrencies pollute the most? 

Cryptocurrencies that pollute the most heavily rely on PoW mining, with Bitcoin ranking number one at the time of writing. For years, Ethereum was the second largest blockchain for energy consumption and pollution, but it virtually eliminated its negative environmental impact when it transitioned from PoW to PoS in September 2022. According to the Ethereum Foundation, the new Ethereum 2.0 chain produces 99.9% less CO2 and consumes 99.9% less electricity than the original blockchain. 

A few other PoW cryptocurrencies that have the highest energy use include:

  1. Dogecoin
  2. Litecoin
  3. Bitcoin Cash
  4. Monero
  5. Ethereum Classic 

Addressing the environmental impact of cryptocurrency: Eco-friendly solutions

Although crypto mining may contribute less to climate change than gold mining or international banking, it still affects the environment. Blockchain leaders have been working on many strategies, including the following, to make the industry greener: 

Alternative consensus mechanisms

PoW played a foundational role in the history of cryptocurrency, but it’s the least environmentally efficient consensus mechanism, prompting many new crypto developers to shy away from it. 

Developers presently are highly focused on PoS. Unlike PoW, PoS requires validators to lock a native cryptocurrency on the blockchain to get a chance to confirm transactions, eliminating the need to mine crypto. The total energy consumption and pollution on PoS blockchains are almost non-existent, especially compared to their PoW counterparts.

Following its successful 2022 upgrade, Ethereum is now the largest PoS cryptocurrency. Other major projects that use the PoS algorithm include Cosmos, Cardano, and Avalanche. 

In addition to PoS, developers are working on eco-friendly consensus algorithms. A few of these more experimental models include proof-of-history, proof-of-activity, and proof-of-authority. The more blockchains move from PoW to other consensus mechanisms, the less impact cryptocurrencies may have on the environment. 

Crypto environmental agencies 

Since cryptocurrencies are decentralized, it’s difficult to reach agreements and enforce energy standards. However, a few organizations are developing eco-conscious guidelines for mining pools. For example, more than 250 crypto projects have joined the Crypto Climate Accord, which was developed during the UN’s Paris Climate Accords of 2016 and seeks to make the crypto industry carbon-neutral by 2060. Companies signing the Crypto Climate Accord pledge to reduce pollution and energy consumption.

The Bitcoin Mining Council (BMC) is another organization dedicated to fostering transparency in the mining industry. To encourage environmental practices on the Bitcoin blockchain, the BMC holds quarterly meetings, conducts research, and shares best practices with members. 

While these organizations can’t dictate the direction of decentralized blockchains, they can spread actionable information on improving environmental standards in the crypto industry. 

More efficient mining hardware 

Many corporations are exploring ways to improve the hardware behind PoW mining. The more efficient mining rigs are, the less electronic waste, electricity drain, and pollution they’ll produce each year. For example, chip manufacturer Intel announced it’s working on an energy-efficient “Bonanza Mine System” for the Bitcoin blockchain. Payment processing company Block (formerly Square) is also researching eco-friendly mining systems. And oil and gas company Shell announced it’s working on advanced cooling systems for BTC mining rigs. 

Hopefully, these technological improvements can strengthen Bitcoin’s hash rate without impacting the environment.

Wrapping up  

Crypto is far from achieving carbon neutrality, but more miners, developers, and blockchain advocates are working toward its sustainable future. From alternative consensus mechanisms like PoS to next-gen mining equipment, many strategies can make crypto more compatible with the environment.  

At Worldcoin, we support the eco-conscious movement within the crypto industry. We also believe that cryptocurrencies can serve a global good, which is why we’re working on sending free cryptos like the DAI stablecoin to everyone. Subscribe to our YouTube channel to learn more.

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