Is cryptocurrency bad for the environment?

(Image credit: Illustrated | Getty Images)

published 15 December 2022

Crypto has come under intense scrutiny following the crash of FTX, a $32 billion cryptocurrency exchange. However, many remain unaware that cryptocurrency actually has a steep environmental cost. Here's everything you need to know:

What is cryptocurrency?

Digital currency can be used to make some purchases; however, most people choose to invest in cryptocurrency, Forbes writes. Cryptocurrency transactions are verified using an encryption system and recorded in a public ledger known as the blockchain. New crypto units are produced through a process called mining, in which computers perform complicated mathematical analyses, resulting in crypto coins.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

The main culprit for environmental damage is the proof of work method. It involves mining, where the first computer to solve a math puzzle is rewarded with the currency that is then recorded in the blockchain. In order to do so, many use application-specific integrated circuit (ASIC) miners, which are very powerful computers designed to mine a certain cryptocurrency, writes Insider. The more ASIC miners there are, the higher the competition. "The more machines on the market, the more difficult it becomes to mine," explains Junior Theomou, the founder of Miners DeFi, to Insider. "So now you have a competition going on, with more and more machines, mining and competing within each other." The method of verification requires intense processing power.

Proof of stake is a newer method that uses less processing power, where a certain amount of cryptocurrency is staked, and anyone who stakes currency can verify transactions. The more you stake, the more you can verify. "It's almost like bank collateral," explains Buchi Okoro, co-founder, and CEO of cryptocurrency exchange Quidax, to Forbes. This method is much faster and doesn't require energy-intensive equation solving.

Mining cryptocurrency is responsible for high levels of energy consumption, especially since proof of work is still the most dominant verification method. According to the University of Cambridge, Bitcoin, the largest global cryptocurrency, alone produces over 40 million tons of carbon dioxide per year and consumes an average of over 80 terawatt-hours of energy per year. Also every four years, the amount of coins earned after mining gets halved, requiring double the amount of energy to produce one coin, Insider explains.

While Bitcoin is just one type of cryptocurrency, research from the White House Office of Science and Technology Policy (OSTP) found that cryptocurrency in general produces about 120 and 240 billion kilowatt-hours per year, which exceeds the total energy use of Argentina or Australia and accounts for between 0.4 percent to 0.9 percent of global energy usage. It also accounts for approximately 0.3 percent of global annual greenhouse gas emissions.

Crypto mining also produces a large amount of electronic waste. Bitcoin produces an average of 40 kilotons of e-waste per year. This is largely due to how quickly mining technology becomes obsolete due to new advancements. Research has shown that mining technology only lasts an average of 1.29 years, per BBC. The ASIC miners are incredibly specialized, making them impossible to repurpose once they are no longer useful.

Many in favor of crypto argue that the technology uses renewable energy to function; however, there have been conflicting numbers on this. One source even found that Bitcoin's renewable energy usage actually dropped in 2021, Time reports. There is plenty of evidence to show the harms of greenhouse gas emissions as well as waste, including rising sea levels and harm to wildlife. The world is also in the midst of an energy crisis due to Russia's war on Ukraine, which calls cryptocurrency energy usage into further question.

However, Bitcoin doesn't show any signs of changing its system. "It's only as secure as it is because it hasn't changed ever. And that is what people love about it," explains Theomou to Insider. This isn't due to a lack of options. There are plenty of mining methods that don't require as much energy and the crypto industry can opt to switch to renewable energy sources. Many smaller currencies have already opted to use proof of stake verification and over 200 currencies signed the Crypto Climate Accord.

Explore More

Devika Rao has worked as a staff writer at The Week since 2022, covering science, the environment, climate and business. She previously worked as a policy associate for a nonprofit organization advocating for environmental action from a business perspective.