Guest column: Cryptocurrency technology transition needed to avoid accelerating environmental crisis
By Tony Guo and Julian Picard of Project Earth
One of the hottest debates in environmental circles today is the debate over cryptocurrencies, and whether or not these digitized/virtual currencies are the high-tech wave of the future, or an accelerator of environmental crisis. The answer so far, it appears, is both.
Cryptocurrencies such as Bitcoin and Ethereum have been surging in popularity as part of a secure and decentralized financial system, topping more than $2 trillion in market valuation, up from $14 billion a little over five years ago. An estimated 40 million Americans have invested in, traded in or used cryptocurrencies. All cryptocurrencies rely on blockchain technology but have different governance systems referred to as protocols. One of the protocols they rely on has been identified as a major environmental threat given the reliance on high uses of electricity.
In March, President Biden issued an executive order on cryptocurrencies that included a call to address “negative climate impacts.”
Cryptocurrencies can use a lot of electricity due to the immense computing power required to secure the blockchain under certain protocols. Bitcoin, the largest cryptocurrency by market capitalization, uses a proof-of-work protocol that requires a digital form of “mining.” Bitcoin miners validate transactions on the blockchain by solving difficult computational problems and receive bitcoins as rewards for their work.
With the wave of interest in cryptocurrency and the resulting surge in bitcoin valuations, more people are flocking to crypto mining as an investment vehicle. This is a problem because bitcoin’s proof-of-work adjusts the difficulty of mining based on the number of active miners. More active miners equal harder computational problems, resulting in more computing power required and thus more electricity usage.
As a result, Bitcoin’s global electricity consumption has increased ten-fold since January 2017. If bitcoin were a country, it would now be the 27th –largest electricity consumer globally, ahead of Ukraine, Norway, and Sweden. Besides electricity usage, crypto mining also creates a lot of electronic waste. Immense computing power is essential for crypto mining, so the equipment is continuously replaced. It’s estimated that Bitcoin could contribute up to 64.4 kts of e-waste annually.
Proponents of crypto mining argue that a significant amount of electricity used is generated from carbon-neutral sources. According to Riot Blockchain, 40 percent of energy used in crypto mining comes from renewable energy. Separately, Core Scientific, the largest digital miner in North America, advertises running carbon-neutral operations by using a mix of clean electricity and renewable energy credits.
Crypto mining advocates also say that they draw on excess energy to power their mining operations during off-peak hours. Nonetheless, whether the electricity used for crypto mining is from clean energy or not, or used during off-peak hours, there is no denying that the energy could be put to alternative uses.
Happily, there does seem to be a realistic solution. Bitcoin could switch its protocol from a proof-of-work to a proof-of-stake protocol, and thus eliminate 99 percent of its electricity requirements. Ethereum, the second-largest cryptocurrency by market capitalization, is already making the transition. Now, Bitcoin is facing increased pressure to do the same.
The proof-of-stake protocol removes the need to “mine” cryptocurrencies. Users instead “stake” their cryptocurrency to validate additional blocks on the blockchain. Proof of-stake doesn’t require solving complex computation problems, so most of the electricity needed under proof-of-work is eliminated.
Many large Bitcoin miners, including several that are publicly traded, are pushing back on such a switch, however, because it will make their mining operations obsolete.
Since no one entity owns Bitcoin, there needs to be a consensus among the users for any changes to its protocol.
Changing Bitcoin’s code is the most feasible way of reducing the environmental impact from crypto mining. It’s impossible to trace the energy sources of all miners so the alternative of forcing crypto miners to only use clean energy will be an insurmountable task. Bitcoin is a decentralized platform – the leading eight publicly traded digital miners only contributed to roughly 5 percent of total bitcoins mined in 2021.
It’s difficult to know how this will play out. Ethereum’s switch to a proof-of-stake model is expected to be completed by the end of 2022. The success of that transition will be critical to the future for Bitcoin. And for all of us.
Project Earth is a substack dedicated to demystifying the roadmap to achieving net-zero greenhouse gas emissions by 2050. We examine pollution sources, solutions and implementation. Project Earth’s creators are Tony Guo and Julian Picard.
(Opinion columns published in The New Lede represent the views of the individual(s) authoring the columns and not necessarily the perspectives of EWG or TNL editors.)