The rise in popularity (and value) of so-called ‘Cryptocurrencies’ has led to a surge in individuals and syndicates ‘mining’ for the currency- with the annual energy consumption of the Bitcoin network now higher than the nation of Norway. How is this impacting the environment?
What are Cryptocurrencies, and how can they be obtained?
Cryptocurrency is a form of digital currency that is based upon blockchain technology, as Forbes explain:
“A cryptocurrency is a medium of exchange that is digital, encrypted and decentralized. Unlike the U.S. Dollar or the Euro, there is no central authority that manages and maintains the value of a cryptocurrency. Instead, these tasks are broadly distributed among a cryptocurrency’s users via the internet.”[i]
The technology it is based on, blockchain, is an open, distributed ledger that records transactions in code. Any transactions are recorded in ‘blocks’ that are then linked together on a ‘chain’ of previous cryptocurrency transactions. Today there are numerous cryptocurrencies in use, the most famous of which is ‘Bitcoin’. Other examples include Ethereum, Dogecoin, and Shiba Inu. Bitcoin is limited to 21 million coins, meaning the mining process is finite; at present only 2.1 million remain to be mined.
Today a single Bitcoin is worth almost £50,000. Bitcoin itself has a market cap of £936bn, and represents more than a 3rd of the cryptocurrency market (9th November 2021)
What is Cryptocurrency Mining?
Cryptocurrency mining is a process from which new units of cryptocurrency, such as Bitcoin, are released into the world, often occurring when a transaction is validated and added to the blockchain. There are two techniques used to verify transactions. The validation techniques are ‘proof of work’ and ‘proof of stake’. The former strategy, which is very energy intensive, requires a participating computer, or ‘miner’ to solve a numerical puzzle which has a 64-digit hexadecimal solution known as a hash. This puzzle helps to verify a group of transactions or ‘block’ which then adds them to the blockchain ledger itself, it provides the integrity for the system authenticating the transaction and stops previous blocks from being modified. The first computer to find the solution to the numerical problem is subsequently awarded the next block of cryptocurrency, and the process begins again.
Contrastingly, ‘Proof of stake’ requires users to stake an amount of cryptocurrency as collateral ahead of being able to participate in validation. Each person who stakes crypto is eligible to verify transactions, however the more cryptocurrency put up front, the more chance an individual will be chosen to verify transactions, again receiving a ‘transaction’ and ‘subsidy’ fee for doing so.
How Significant is Cryptocurrency Mining to the Environment?
As mentioned above, cryptocurrencies which require ‘proof of work’ validation to mine, such as Bitcoin, are energy intensive, as computers utilise processing power to solve numerical puzzles. The result has been investment by cryptocurrency miners in huge warehouses filled with hundreds, and sometimes thousands, of computers running day and night to mine crypto. This has meant that individuals are disadvantaged in mining remaining coin, and those invested at scale are in a constant race to further grow and perfect their operations. Visual capitalist reports (referencing the University of Cambridge’s Bitcoin Electricity Consumption Index) that in March 2021, the annual power consumption of the Bitcoin network alone was estimated to be 129 terawatt-hours. To put that into perspective Norway, a country of 5.4 million people, has an annual usage of 124 terawatt-hours[ii].
Further mining requires the use of powerful Graphics Processing Units (GPUs), a staple in high-end gaming PCs and laptops. The demand for these in recent years by miners specifically, has caused shortages and seen prices rocket. Not to mention the environmental impact the resource extraction, manufacturing of components, and shipping of thousands of CPUs has had. Likewise, when mining is applied on a large scale (such as the mining warehouses mentioned above), hundreds of computers running at peak performance generate a large amount of heat. As a result, locations which enable cooling and the release of heat into the atmosphere are favoured by miners, for example former powerplants or factories.
The cryptocurrency community has made some acknowledgment of the potential environmental impact mining has. Cambridge University survey data published in September 2020 found that “a significant majority of hashers [miners] (76%) use renewable energies as part of their energy mix.”[iii] However, “the share of renewables in hashers’ total energy consumption remains at 39% (when compared with 2018)”.
Even so, with mining operations continuing to grow, as we see cryptocurrency becoming more mainstream, there are fears around the environmental impact this is having. Recent research by Alex de Vries and Christian Stoll, which was published in the journal Resources, Conservation & Recycling found that cryptocurrency miners each year produce 30,700 tonnes of e-waste. This is comparable “to the ‘small IT and telecommunication equipment’ waste (eg mobile phones, personal computers, printers, and telephones) of a country like the Netherlands”[iv] The researchers argue that increasing energy demands for crypto mining have led miners to invest in ever more specialised chips (Application-specific Integrated Circuits [ASICs]) in an attempt to become more energy efficient. However, these chips quickly become obsolete and cannot be repurposed, adding to waste produced.
Undoubtedly, the mining for cryptocurrency is having a considerable impact on the environment; both in terms of the substantial energy usage, as well as from the throw-away culture associated with the GPU’s and chips for mining. However, one positive is that ‘proof of stake’ validation is becoming more popular, and crypto currencies using this technique more sought after.
Ultimately people will go where the money is; for now Bitcoin remains valuable and heavily invested in, as the race to extract the last 2.1 million Bitcoin heats up.