The Environmental Impact of Cryptocurrency on Climate Change is Significant

Cryptocurrencies, a digital form of money safeguarded by cryptographic techniques and managed via blockchain technology, are generating significant attention. Blockchain operates by distributing numerous digital ledgers across a network of computers, ensuring security and transparency.

Beyond their use as a medium of exchange, cryptocurrencies have become a popular investment vehicle. As reported by CNBC, the cryptocurrency market surpassed $2 trillion globally in April 2021, a historic milestone. Bitcoin, the leading digital currency, represented over half of this total market value.

Scientists and environmentalists have raised concerns about the potential environmental harm caused by bitcoin and other cryptocurrencies. The issue stems from the energy-intensive process of blockchain verification, where computers worldwide solve intricate mathematical problems to validate transactions. This activity, known as mining, can be profitable, as participants are rewarded with bitcoins. For a deeper dive into the process, check out how to mine dogecoin.

Critics highlight that the computational power required for mining consumes vast amounts of energy. According to the Cambridge Bitcoin Electricity Consumption Index, bitcoin alone uses 149.63 terawatt hours annually, surpassing the energy consumption of entire nations like Malaysia and Sweden. Bill Gates, Microsoft co-founder and philanthropist, recently told journalist Andrew Ross Sorkin that bitcoin's energy use per transaction exceeds that of any other known method.

Pinpointing the exact proportion of electricity derived from coal and gas—key contributors to climate change—is challenging. However, given that nearly two-thirds of global electricity comes from fossil fuel plants, it's reasonable to assume that cryptocurrencies could exacerbate climate change. A 2018 study published in Nature Climate warned that bitcoin's growth alone might generate enough emissions to increase global temperatures by 3.6 degrees Fahrenheit (2 degrees Celsius) by 2033. (Some researchers have argued that this estimate may overstate the issue.)

Cryptocurrency Is Here to Stay

Although the situation may seem alarming, Camilo Mora, the lead author of the study, remains optimistic. He believes the energy consumption issues tied to cryptocurrencies can be addressed before reaching critical levels.

"Cryptocurrencies are a permanent fixture," Mora states in an email. As an associate professor in the Department of Geography and Environment at the University of Hawaii at Manoa, he adds, "This technology offers numerous advantages, and there's a clear, widespread demand for it. As a researcher, I am deeply concerned about the environmental effects of technologies that aren't yet fully sustainable. However, I am confident that, like other technologies, there is potential for significant improvement."

Mora believes cryptocurrencies will undergo significant evolution, much like other technologies. He draws a parallel to cellphones, which transitioned from bulky, costly devices to the compact, affordable gadgets we use today. He highlights several emerging cryptocurrencies—Cardano, XRP, Stellar, and Tron—as examples of alternatives with a lower environmental impact compared to bitcoin.

"I am confident that cryptocurrencies will adapt to significantly reduce their ecological footprint," Mora asserts.

Emerging cryptocurrencies are adopting innovative approaches like proof of stake to reduce energy consumption. This method enables miners to validate blockchain transactions based on the quantity of coins they possess, rather than solving complex equations.

Cryptocurrency and Alternative Energy

A promising approach involves shifting cryptocurrency networks to renewable energy sources. According to the Cambridge Index website, solar and wind energy alone could power the bitcoin network nine times over, highlighting the potential for sustainable energy solutions.

In pursuit of this goal, 35 entities from the cryptocurrency, finance, energy, and NGO sectors have established the Crypto Climate Accord (CCA). Their mission is to transition the cryptocurrency industry to 100% renewable energy by 2025.

"We are addressing this challenge by creating open-source tools that simplify the process for crypto mining operations, exchanges, and investors to adopt renewable energy sources based on their energy usage," says Doug Miller in an email. Miller, the global markets lead for Energy Web, a nonprofit dedicated to developing open-source software for clean energy adoption, carbon tracking, and integrating distributed energy resources like residential solar panels, is a key participant in the accord.

Different cryptocurrency blockchain systems vary in their energy usage, with some being far less energy-intensive than bitcoin. "However, the CCA isn't prioritizing one consensus protocol over another, as our focus is on rapidly decarbonizing the entire sector," explains Miller. "The primary goal of the CCA is to transform all crypto-related energy consumption into a driver for new renewable energy demand, thereby accelerating investments in renewable energy infrastructure. Essentially, we view the crypto industry as a significant and emerging market for renewable energy."

"We, along with others, are creating advanced technological tools aligned with industry best practices for renewable energy procurement. This will enable crypto market participants to make verifiable claims about sourcing 100% renewable energy for their electricity needs tied to crypto activities," Miller states.

"Additionally, we aim to gather insights from stakeholders and researchers to offer guidance on implementing further measures for complete decarbonization of the sector. This will also set an example for other industries to follow," he adds.

In related news, Elon Musk announced on May 12, 2021, that Tesla will no longer accept bitcoin until its production can be verified as sustainable.