Minimising Crypto's Environmental Footprint: Strategies for Sustainability

Bitcoin mining is estimated to have an annual carbon footprint of 94.59 metric tons (MT).

Key Takeaways

• While cryptocurrency is a crucial disruptor in the modern financial order, its environmental footprint is significant.

• Bitcoin mining is estimated to have an annual carbon footprint of 94.59 metric tons (MT).

• In this blog, we discuss some of the sustainable ways which can help minimise the environmental footprint of crypto.

Though cryptocurrency is a crucial disruptor in the financial system, we cannot have any sensible discussion about crypto without considering its environmental footprint. The way industry, including traditional finance (TradFi), cannot be excused when it comes to its adverse environmental impact, the same holds true for crypto and decentralised finance (DeFi) also.

In fact, environmental activists have raised the issue ever before the first Bitcoin (BTC) was minted in 2009. Creating cryptocurrencies is an energy-intensive exercise and its environmental footprint is significant. The matter has ignited a lot of debate in the national parliaments and the international press. In this blog, we dive deeper into the adverse environmental impact of crypto and suggest sustainable strategies to counter its carbon footprint.

How does Cryptocurrency Harm the Environment?

Cryptocurrency is a decentralised virtual currency that removes all the barriers such as central bank, commercial banks, exchanges etc. among users. Like fiat currency is minted, cryptocurrency is mined. But the process of crypto mining is extremely energy intensive as most cryptocurrencies such as  Bitcoin (BTC) use the proof-of-work (PoW) consensus mechanism. Crypto mining is the method through which new crypto tokens are created and new transactions are validated. A PoW-based blockchain system verifies and adds a block to the chain once it recognises that the block has been generated with effort and time.

So, how does it work? Crypto is mined by a set of miners on a decentralised blockchain network who compete with one another to generate a hash that nearly matches the hash of the block containing the correct transactions. Miners use complex computing devices, called application-specific integrated circuits (ASICs), to generate hashes and aim to create the matching hash first to earn the rewards.

It takes a trial-and-error method to create a matching hash to solve the puzzle. So, a miner’s success rate is proportional to their computing power. Miners are thus rewarded for the quantum and speed of their computing power. Since the rewards far outweigh the costs, miners deploy the most energy-intensive ASICs to gain maximum profits.

Due to lucrative profits, more people join the mining community and overall energy usage increases. One can imagine that a concern for our environment is hardly a thought when profits overshadow everything else.

Environmental Footprint of Bitcoin Mining

The complex method of Bitcoin mining is the reason crypto is criticised for its adverse environmental impact. According to Digiconomist, Bitcoin mining is estimated to have consumed 170 terawatt-hour (TWh) per year (as per July 2024 estimate), comparable to the power consumption of Poland.

Image: Bitcoin energy consumption, Digiconomist

Bitcoin mining has an annual carbon dioxide (CO2) footprint of 94.59 metric tons (MT), comparable to the carbon footprint of Nigeria. It produces an annual electronic waste of 10.52 kT, comparable to the small IT equipment waste of the Netherlands. It consumes 2,673 gallons of freshwater, comparable to the total water use of Switzerland. So far, we have only looked at annual figures regarding Bitcoin’s environmental costs. Let's look at what it costs to validate and execute a single Bitcoin transaction.

• One Bitcoin transaction consumes 724.62 kWh of energy that could power 487,532 VISA transactions or an average U.S. household for 24.84 days.

• One Bitcoin transaction has a CO2 footprint of 404.16 kg, an amount produced by 895,766 VISA transactions.

• One Bitcoin transaction produces 44.9 kg of e-waste, an amount produced by 0.27 iPhone 12 or 0.09 iPads.

• One Bitcoin transaction requires 11,420 liters of freshwater which can be used to fill a backyard swimming pool.

Bitcoin is often called the “digital gold.” Do you know that around 3,531 tonnes of gold are mined every year, emitting 81 million MT of CO2? The CO2 footprint of one unit of Bitcoin is 735 tonnes. In contrast, the CO2 footprint of one Bitcoin's worth of gold (in terms of monetary value) is barely 26 tonnes.

Which Countries Lead Bitcoin Mining?

The countries with the largest volume of Bitcoin mining are:

These top 10 countries account for 93.8% of the entire Bitcoin network by hashrate. These are countries where power is cheap and sufficient, and there is no legal obstacle to mining. Earlier, China used to be at the top of the list as coal power was cheap in Xinjiang and Inner Mongolia. However, the country banned crypto mining in June 2021. Though it still exists covertly, most miners from the country moved to Kazakhstan. The carbon content of the coal in Kazakhstan is much higher than that of Chinese coal which has aggravated the situation.

Image: Energy consumption by country, Digiconomist

In fact, Bitcoin’s total energy consumption could be used to power:

• 3.9% of the United States

• 16.7% of Russia

• 29.2% of Canada

• 29.5% of Germany

• 34.8% of France

• 51.3% of the United Kingdom

• 53% of Italy

• 67.6% of Australia

• 142.7% of the Netherlands

• 239.2% of Czech Republic

What are the Power Sources of Bitcoin Mining?

As per a United Nations report, scientists informed Bitcoin mining heavily relies on fossil energy sources.

• Coal (45%)

• Natural gas (21%)

So, has the mining community considered deploying alternative sources of power? Yes, renewable and sustainable energy sources are also being used to power Bitcoin mining.

• Hydropower (16%)

• Nuclear energy (9%)

• Wind energy (5%)

• Solar energy (2%)

Fengqi You, a data scientist at Cornell University, suggested that Bitcoin could be mined off-grid during the precommercial phase so that it can support renewable energy development and mitigate climate change. Though the use of clean and sustainable energy sources for crypto mining is commendable, the move could limit the availability of clean power for the masses.

How to Minimise Crypto’s Environmental Footprint?

Cryptocurrency has been criticised since its infancy for its environmental footprint. However, there are a few sustainable ways in which we can minimise the environmental footprint of crypto:

Transition from PoW

It is Ethereum (ETH) that comes to mind when we think of any cryptocurrency that made the transition from the energy-intensive PoW consensus mechanism to a sustainable proof-of-stake (PoS) mechanism. The transition took place through the Ethereum Improvement Proposal (EIP)-3675 in July 2022 which was an attempt to address the environmental concerns due to PoW-based mining.

• PoW, as mentioned above, requires the use of computer power by miners to solve difficult mathematical puzzles to validate transactions. It consumes a lot of energy.

• PoS asks validators to stake some of their crypto tokens rather than asking miners to solve mathematical puzzles. The network then randomly selects a validator to build a new block based on the stake size and other characteristics. Instead of new tokens, the validator is compensated with transaction fees.

PoS is more energy-efficient and sustainable than PoW. In fact, Ethereum’s transition from PoW to PoS with the Merge cut the blockchain network’s energy usage by 99.95% as per the organisation.

• BTC, Bitcoin Cash (BCH), Dogecoin (DOGE), and Ethereum Classic (ETC) are the most popular PoW  cryptocurrencies.

• ETH, Cardano (ADA), Algorand (ALGO), and Solana (SOL) are the most popular PoS cryptocurrencies.

You can trade any of the above cryptocurrencies or more by registering with us at BitDelta.

Industry Initiatives

The crypto industry itself can take sustainable initiatives to address the environmental challenges arising from crypto mining and usage. The Climate Chain Coalition (CCC) is an environmental sustainability consortium established in Paris in December 2017.

• Its stated goal is to utilize emerging technologies such as blockchain and distributed ledger technology (DLT) to further the transition of global financial architecture toward a sustainable and green economy.

• The CCC is aligned with the long-term goals of the Paris Agreement of 2015.

• Over 360 organisations from 69 countries are members of the CCC.

• Cardano Foundation, Blockchain for Climate Foundation, Sustainable Bitcoin Protocol, Chainlink, VeChain, and Blockchain & Climate Institute are among the leading CCC members from the crypto sector.

Inspired by the Paris Agreement of 2015, leaders from the crypto industry joined each other to sign the Crypto Climate Accord (CCA) in April 2021. The CCA is an environmental initiative that aims to spur the transition of all blockchains to renewable energy sources by 2030 if not sooner.

• It wants the crypto industry to reach “net zero” emissions or become carbon neutral by 2040.

• The CCA is led by three non-profit organisations, the Rocky Mountain Institute, the Energy Web Foundation, and the Alliance for Innovative Regulation.

• The CCA is supported by the United Nations Framework Convention on Climate Change (UNFCCC) Climate Champions.

• Blockchain-based digital payments solutions provider Ripple, crypto miner Hut 8, virtual asset investment firm CoinShares, blockchain firm ConsenSys, and virtual asset investment firm 21Shares are among the CCA’s leading signatories from the crypto sector.

Can Green Finance Shape Tomorrow's Economy?

Government Policy

Though governments should generally refrain from intervening in business, they cannot turn a blind eye to the environmental footprint of the crypto industry. The way governments encourage clean and sustainable energy sources over fossil fuels, they can incentivise organisations to opt for PoS-based blockchains instead of PoW ones. PoS is more sustainable and energy-efficient than PoW, making the former more scalable for enterprises. Governments can also ban or restrict crypto mining in regions facing energy or environmental crisis.

In fact, China had specifically put an outright ban on crypto mining to combat the environmental footprint of crypto. Governments can incentivise or penalise any private organisation as per its carbon emissions. These are some of the sustainable steps that governments across the world can take to tackle the adverse environmental impact of crypto.

Last Words

The supporters of the crypto industry highlight its primary benefit as offering the access of the financial system to those outside the purview of the TradFi order. However, this claim is backed by little proof as most users dealing in crypto are already well embedded in the TradFi order. In comparison, crypto’s environmental footprint—particularly that of the PoW-based blockchains—is a significant disadvantage. Both the crypto industry and the governments recognise this underlying truth.

But it would require more than lip service to combat the climate change being caused by crypto. Sustainability initiatives on the part of the crypto industry and stern government policies are the primary tools to minimise the environmental footprint of crypto. Blockchain technology is a crucial development in the 21st century and we cannot simply abandon it, given its huge advantages. What we can do is to harness it for the benefit of humanity while combating its adverse effects on the environment through sustainable ways.

Frequently Asked Questions (FAQs)

1. How does cryptocurrency cause environmental damage?

The process of mining cryptocurrency is extremely energy intensive as most cryptocurrencies use the PoW consensus mechanism. It has a significant carbon footprint, besides a high power consumption. This is how crypto causes environmental damage.

2. What is the carbon footprint of Bitcoin mining?

Bitcoin mining has an annual carbon dioxide (CO2) footprint of 94.59 metric tons (MT).

3. What energy sources power Bitcoin mining?

Fossil energy sources such as coal (45%) and natural gas (21%) are the primary energy sources powering Bitcoin mining. Renewable energy sources such as hydropower (16%) and nuclear energy (9%) are also used.

4. Which countries mine Bitcoin the most?

The United States (37.8%), China (21.1%) and Kazakhstan (13.2%) are the leading countries in Bitcoin production in terms of hash rate.

5. What should be done to minimise the environmental footprint of crypto?

The following are a few strategies to minimise crypto’s environmental footprint:

• A blockchain’s transition to sustainable and energy-efficient PoS mechanism,

• Crypto industry’s sustainability initiatives, and

• Sustainability-oriented government policy.