At first glance, the cyber-world of crypto-currencies would seem to be an angel compared to the devil – heavy industries causing much of the Earth’s dangerous warming, such as coal-fired power generation, cement manufacturing and the blast furnaces used to forge steel.
It’s rapidly becoming apparent, however, that this angel and devil have much in common.
At the heart of their growing similarity beats Bitcoin, the world’s largest crypto-currency with a market capitalisation of just over $800 billion as of September 21.
As new digital currencies proliferate – experts say there are now more than 4,000 – Bitcoin’s share of the sector’s total value is reckoned to have declined from 86% in 2015 to 66% last year. By some accounts it represents just under 50% today, but there are no definitive numbers and estimates vary as wildly as crypto-currency prices.
Yet, Bitcoin is today’s bête noire, blamed primarily for the crypto sector’s soaring energy use – already equivalent to the consumption of a medium-sized country, with a corresponding level of carbon emissions.
That’s because of the way bitcoins are created – by specialised computers solving complex mathematical problems to validate transactions on the decentralised blockchain network on which they are recorded.
The puzzles to be solved are deliberately and increasingly difficult – a security measure to prevent control of the network being captured by hackers. However, this entails an escalation of the computing power required and energy consumed.
Carbon emissions attributed to Bitcoin mining nearly tripled over just two years between 2018 and 2020 to some 60 million tonnes, according to Bank of America Securities, closing in on the level ascribed to the entire US government, which employs around two million people, and about half the total emissions of ExxonMobil and its products.
The latest estimates put mining at least on a par with the emissions of countries such as Sweden and Malaysia, and all the indications suggest the currency’s carbon footprint will keep rising if its price continues to appreciate. Still another astonishing data point: Bank of America says no other human activity has a higher carbon footprint per unit of investment.
The issue came to mainstream prominence in May when Elon Musk, who had two months earlier announced that Tesla would accept Bitcoin in payment for its electric cars, abruptly reversed course over concerns about the increasing use of fossil fuels, especially coal, for bitcoin mining and transactions.
“Cryptocurrency is a good idea on many levels and we believe it has a promising future,” Musk tweeted, “but this cannot come at great cost to the environment.” However, he says Tesla will use Bitcoin for transactions once mining transitions to more sustainable energy, and it will also look at other crypto-currencies that use less than 1% of Bitcoin’s energy per transaction.
Musk’s volte-face triggered an abrupt fall in the value of Bitcoin, with its market capitalisation plummeting by more than $365 billion within 48 hours. Its price fell from $57,868 on May 1 to $29,790 on July 20, although it had recovered to $40,683 as of September 21.
One problem is that Bitcoin’s market dominance leaves few viable alternatives in view. Its nearest competitor, Ether, currently has a market capitalisation of just over $336 billion, less than half Bitcoin’s. The next largest, the Tether stablecoin on the Ethereum blockchain, has a capitalisation of just $69.6 billion.
Ethereum’s founders have promised to reduce its carbon footprint by moving its mining algorithm from proof of work to a ‘proof of stake’ model, which they say could reduce the energy cost of each transaction by 99.95%.
This would involve miners demonstrating their commitment to keeping the blockchain accurate by storing some of their cryptocurrency in the network, removing the need for computers to solve the mathematical problems.
Slow march to progress
However, progress toward the transition, first announced in 2014, has been slow; at present a proof of stake system is operating alongside the existing model and full implementation is not scheduled to take place until 2022.
Defenders argue that the environmental impact of Bitcoin and other proof of work crypto-currency is exaggerated, pointing to one survey that claims at least 75% of bitcoin miners use renewable energy, at least in part.
A study by the Cambridge Centre for Alternative Finance suggests that on average, 39% of proof of work mining between 2015 and 2021 was powered by renewable energy – primarily hydroelectric power in China – compared with a global average of 25% of all consumption in 2019.
Unwitting Chinese help
Paradoxically, a clampdown on Bitcoin mining by the Beijing government in May could be instrumental in reducing its impact on the environment. The measure caused a slump in mining in China, contributing to a fall in its share of activity from 71% to around 50%, market analysts say.
They believe it has also resulted in older, less efficient mining equipment being abandoned and new, more energy-efficient models joining the market. Counterintuitively, Texas is now touted as a hotspot for mining activity because it has plentiful cheap renewable energy, as well as natural gas from oilfields that is currently mostly burned off; the US is now reckoned to account for nearly 17% of the world’s bitcoin miners, a share that has doubled over the past year.
However, some of the business is reported to have shifted to Kazakhstan, which offers cheap and abundant coal-fired energy, although the country has approved a tax on crypto-currency mining due to take effect next year.
Less damaging currencies?
Meanwhile, other crypto advocates point to a range of other digital currencies whose carbon footprints are vastly smaller than that of bitcoin – although many of them are handicapped by limited market penetration.
An exception is Cardano, currently the fourth largest crypto-currency by market capitalisation, which uses a proof of stake mechanism and, according to founder Charles Hoskinson, uses just 6 gigawatt hours of energy annually, more than 10,000 times less than Bitcoin.
Even so, crypto-currency mining will still be a target of environmentalists because its single-purpose equipment is estimated to become obsolete within 18 months, adding to the world’s stock of electronic waste – generating as much a year as that of the Grand Duchy of Luxembourg.