What's the Environmental Impact of Cryptocurrency?

Many people are bullish about cryptocurrencies like Bitcoin, but detractors point to a major flaw—cryptocurrency mining is highly energy-intensive. While mining is just one method available to validate cryptocurrency transactions and mint new crypto coins, it's the method used by Bitcoin and Ethereum, the two leading cryptocurrencies.

Keep reading to find out how much energy is used by cryptocurrency mining, and understand the other environmental impacts of cryptocurrency. Learn about alternatives to crypto mining that use much less energy.

Energy Consumption of Cryptocurrency Mining

There is no direct way to calculate how much energy is used for Bitcoin mining, but the figure can be estimated from the network's hashrate and the consumption of commercially-available mining rigs. The Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin, the most widely-mined cryptocurrency network, uses around 136.38 Terawatt-hours of electricity every year—more than the Netherlands, Argentina, or the United Arab Emirates.

Another estimate by Digiconomist, a cryptocurrency analytics site, places the figure at 204.5 Terawatt-hours. This computes to around 2,145 kilowatt-hours of electricity per transaction, the same amount of power consumed by the average American household over 73.52 days.

Ethereum, the second-largest cryptocurrency network, is estimated to use 112.6 Terawatt-hours of electricity per year—more power than is required by the Philippines or Belgium. The average Ethereum transaction required 268.6 kilowatt-hours of electricity, which is the same amount of power that an average U.S. household consumes in 9.08 days.

Ethereum developers are attempting to transition to a low-energy proof-of-stake consensus mechanism, but this goal remains remote.

The amount of energy consumed by cryptocurrency mining is likely to increase over time, assuming that prices and user adoption continue to increase. Cryptocurrency mining is a competitive process: as the value of the block reward goes up, the incentives to start mining go up as well. Higher cryptocurrency prices mean more energy being consumed by crypto networks.

Why Cryptocurrency Mining Requires Energy

The energy intensity of crypto mining is a feature, not a bug. Just like mining for physical gold, mining for Bitcoin or another proof-of-work (PoW) cryptocurrency is designed to use large amounts of energy. The system is designed to make it prohibitively expensive (although not impossible) for a well-funded actor to take control of an entire crypto network.

Cryptocurrency advocates believe that this decentralized structure has many advantages over centralized currency systems because cryptocurrency networks can operate without relying on any trusted intermediary such as a central bank. In place of any centralized authority, miners use large amounts of computational power to operate and maintain the security of a cryptocurrency network.

Environmental Impacts of Cryptocurrency Mining

Calculating the carbon footprint of cryptocurrency is more complicated. Although fossil fuels are the predominant source of energy in most of the countries where cryptocurrency is mined, miners must seek out the most inexpensive sources of energy in order to remain profitable. In many cases, that means relying on new alternative energy installations.

Based on the geographical distribution of the mining hash rate, Digiconomist estimates that the Bitcoin network is responsible for about 114 million tons of carbon dioxide per year—equal to the amounts generated by the Czech Republic. Mining for Ethereum produces more than 62.9 million tons of carbon dioxide emissions, the same amount as Serbia and Montenegro combined.

Until recently, the Bitcoin network drew about 46.1% of its energy from renewable sources, according to an estimate published in Joule. That changed after China's crackdown in 2021, which forced miners to relocate to more fossil-fuel-dependent countries like Kazakhstan and the United States. As a result, the renewable share of the Bitcoin network fell from 46.1% to 25.1%.

Researchers at the University of Cambridge report that most Bitcoin mining—around 42% in 2021—took place in the U.S., following China's crypto ban. The U.S. gets most of its electricity by burning fossil fuels. Kazakhstan, another country that gets most of its energy from fossil fuels, follows the U.S. in accounting for 18% of the world's Bitcoin mining. As a result, two countries heavily dependent on fossil fuels are responsible for the majority of the world's Bitcoin mining.

Cryptocurrency mining also generates a significant amount of electronic waste, as mining hardware quickly becomes obsolete. This is especially true for Application-Specific Integrated Circuit (ASIC) miners, which are specialized machines designed for mining the most popular cryptocurrencies. According to Digiconomist, the Bitcoin network generates approximately 37 thousand tons of electronic waste every year.

Could Cryptocurrency Mining Use Less Energy?

Large-scale cryptocurrency miners are often located where energy is abundant, reliable, and cheap. But processing cryptocurrency transactions and minting new coins does not need to be energy-intensive.

The proof-of-stake (PoS) method of validating cryptocurrency transactions and minting new coins is an alternative to cryptocurrency mining that does not use extensive computing power. The authority to validate transactions and operate the crypto network is instead granted based on the amount of cryptocurrency that a validator has "staked" or agreed to not trade or sell.

Other methods of validation, such as proof of history, proof of elapsed time, proof of burn, and proof of capacity, are also being developed. While Ethereum developers have stated their goal of retiring from proof-of-work, there is no such objective in the Bitcoin community. That means that mining, along with its enormous energy costs, is likely here to stay.

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