In May 2021, Tesla announced that it would no longer accept Bitcoin as payment for its vehicles and services. Elon Musk then went on to justify the decision by citing data from researchers at Cambridge University, which shows that Bitcoin’s electricity usage has been spiking over time and was at a record high in 2021. Musk then confirmed that Tesla would start accepting Bitcoin when its mining transitions to more sustainable energy.
Suddenly spotlight shifted from how lucrative digital assets are to how bad are they for the environment. Investors who were previously worried about safe platforms to buy cryptocurrency, convert cryptocurrency (fiat), and buy cryptocurrency with a credit card were suddenly conscious that their investment would negatively harm the environment.
Like the mining industry, the cryptoc mining industry also has serious environmental ramifications. This is because of the energy-intensive process of creating digital currency coins. However, unlike the traditional mining industry, the cryptocurrency mining industry can change the way it operates and reduce its harmful effects on the environment.
Here’s a detailed article on why cryptocurrency mining is unsustainable and bad for the environment. We will also tell you about the new developments that may change the unsustainable nature of the crypto mining process.
What Exactly Is the Impact of Crypto Mining on the Environment?
Let’s delve into how new cryptocurrency coins are created. Considering crypto is not regulated by a central authority, the blockchain relies on its users to update the blockchain with new blocks of information. Blockchain implemented a proof of work in all cryptocurrencies to protect this information.
The proof of work mechanism involves solving a complicated mathematical problem. The process goes like the first person to solve the puzzle validates the transaction and gets a fixed amount of cryptocurrency, after which the cycle is repeated. This is the consensus mechanism that’s widely in use. Mining a cryptocurrency involves running a powerful computer 24/7 to crack the mathematical problem using powerful software.
The average computer or laptop is not equipped to mine crypto. Miners use super-powerful rigs to increase their chances of winning the right to update blockchain and get crypto as a reward. To this extent, Application-specific integrated circuit (ASIC) computers were designed with the sole purpose of mining cryptocurrency. These are powerful computers with their computing power optimized to solve the proof of work problems.
However, these machines require a huge amount of electricity to operate continuously. According to the University of Cambridge data, mining Bitcoin alone generates 132.48 terawatt-hours (TWh) annually. The number is so high that it surpasses the annual energy usage of Norway in 2020, which was 123 TWh.
So how does it affect the environment? The level of carbon dioxide emissions from this energy usage is too high but depends on how the energy is created. In the US, where 35.4% of Bitcoin mining occurs, 40 billion tons of carbon dioxide are emitted by Bitcoin mining alone. Moreover, every four years, the amount of crypto awarded for proof of work is halved, and after each halving of CO2 emissions from creating one coin doubles overnight.
Are All Cryptocurrencies Bad for the Environment?
Currently, proof of work is the dominant method to validate transactions and update blockchain information. It will likely continue to be relevant for a while. The good news is that not all cryptocurrencies are created through proof-of-work, and thus they don’t need high energy or processing power to mine a coin. There are other methods of blockchain validation, which are equally secure but less resource hungry.
- Proof of stake: This validation method requires miners to use crypto they already own to create a validator node to verify a transaction. A random validator node is picked when a block of new information requires approval. If someone tries to update inaccurate information, they lose the crypto they put at stake.
- Proof of burn: This is a hybrid between proof of work and proof of stake. In this method, validators need to burn an amount of cryptocurrency, which is removed from circulation. Once they do this, miners obtain a virtual mining rig, which works proportionally to the number of coins burned. The rule is simple, the more coins you burn, the faster you mine. Notably, this mining method has been developed to address environmental concerns.
- Proof of capacity: This validation method uses available storage space on the mining rig’s hard drive. The logic is that possible solutions to the proof of capacity mining algorithm are stored on the hard drive of the rig. Therefore, the more the storage, the more solutions can be stored, and the higher the chances of having the correct solution.
- Proof of elapsed time: Lastly, we have proof of elapsed time, which is primarily used in permission blockchain. These are blockchains that require access, unlike public blockchains.
What Does the Future Hold?
Despite the technological advancements in sources of generating cryptocurrencies, proof of work mining has only gained momentum. It’s now all about finding a sustainable energy source to power the mining rigs. Mining is now concentrated in the US, and it needs to move to other countries with more ways of generating green energy.
Sections of the cryptocurrency industry are also moving away from proof of work validation due to the environmental ramifications. To illustrate, the second most popular cryptocurrency - Ethereum is making a transition to proof of stake. However, Bitcoin continues to be the most trusted and powerful cryptocurrency and will remain the core crypto for years to come. Unfortunately, Bitcoin mining is the main culprit of environmental impact.
It will require more awareness of cryptocurrency, mining, and various alternatives to proof of work validation to reduce the harmful impact. Once the masses are educated, they can choose a cryptocurrency that doesn’t require proof of work and thus is more environmentally friendly.