Understanding the Climate Impacts of Cryptocurrencies

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Since the advent of Bitcoin in 2008, the cryptocurrency industry has grown by leaps and bounds to become an industry in excess of $ 1.4 trillion in market capitalization. The industry aims to be the solution for financial inclusion, financial equity, data privacy and more. But as the industry continues to expand, we are beginning to see its adverse impacts on the climate. With any emerging technology, we must ensure that these innovations are developed responsibly, equitably and fairly. We expect the federal government to provide the necessary oversight to ensure that they are, and on this, they have taken an encouraging first step.

President Biden, in an executive order to ensure the responsible development of digital assets, of which cryptocurrency is part, commissioned the Office of Science and Technology Policy (OSTP) to develop a report that analyzes, among other things, the energy and climate impact . of digital assets. This led the OSTP to issue a “Request for Information on the Energy and Climate Implications of Digital Assets” (RFI).

In response, the NRDC (Natural Resources Defense Council) wrote a letter of comment detailing the climate impacts of cryptocurrencies and their underlying blockchain technology.

It is well documented that the energy consumption and carbon footprint of cryptocurrency is huge and will only increase. To put this in context, bitcoin’s annual energy consumption is the equivalent of Thailand, which ranks 23rd in the world in terms of energy consumption, while its carbon footprint is as large as the Czech Republic. In addition, it is estimated that fossil fuels feed more than 60% of the bitcoin network.

Energy consumption and climate pollution in the industry are large and on the rise, at a time when it is critical to reduce greenhouse gas emissions to prevent global average temperatures from rising by more than 1.5 ° C above pre-industrial levels. “, we wrote in our commentary.

The central reason for the industry’s energy-intensive consumption is the Proof of Work (PoW) protocol used to undermine cryptocurrencies. Mining is a competitive validation method that pits groups of miners against each other, with the group of miners having the highest computational effort being the most likely to collect the financial rewards. It is the computational intensity of this protocol that causes PoW to consume huge amounts of energy.

Although the industry may aspire to power its operations with renewable energy, currently more than 60% of this energy demand comes from the generation of fossil fuels. In addition, research has shown that this energy consumption is directly correlated with the price of Bitcoin, suggesting that if cryptocurrency prices continue to rise, more resources will be used for mining and more energy.

If cryptocurrency mining ever becomes climate friendly, the first essential step is to reduce the power consumption of mining algorithms. The change from a PoW protocol to a Proof-of-Stake (PoS) protocol is expected to reduce energy consumption by 99.95%, which is essential for the industry to operate responsibly with the environment and the most immediate way to reduce its carbon footprint. . PoS is a consensus protocol in which instead of miners competing through computing power, miners are randomly selected to validate transactions. Improvements in energy efficiency and reduced hardware requirements make this proposal a more climate-friendly alternative for the cryptocurrency industry.

In addition to computational intensity, discarded hardware will also have enormous broader climate and pollution implications. Electronic waste is the dark side of our technology, as the chemicals — including mercury, cadmium, and lead — that make our devices work are highly toxic when consumed or absorbed into the bloodstream. Global e-waste is on track to reach almost 82 million tonnes, while the overall e-waste recycling rate is only 17.4%. In 2019, the world generated 59 million tons of e-waste, and within 82.6% of unrecycled e-waste was 62 tons of mercury that has already been released into the environment or will eventually be. And for cryptocurrency, the specialized hardware used only lasts an average of 1.29 years due to the huge tolls that mining carries.

The cryptocurrency industry makes many claims about how cryptocurrency mining can benefit local communities, how it can stimulate investment in renewable energy, or how it can even use existing wasted energy sources, such as the use of energy lost by reduction or methane gas lost during fracking. for mining. However, these arguments are not supported by existing research [insert comment letter link here] and deviate from the fact that cryptographic mining, especially through the PoW methodology, has been a voracious user of energy, incompatible with the fight against climate change; and that any benefit to the climate or local communities, whether economic development or employment, has not been largely demonstrated. Although the industry is moving towards more renewable and sustainable energy sources, we must question whether cryptocurrencies are the best use for this energy.

Ultimately, we must recognize that, as it stands, the energy consumption and carbon footprint of cryptocurrencies is excessive and will increase if the status quo is maintained. The energy consumption and carbon footprint of the industry will continue to grow exponentially if the right protectors are not put in place to guide them. Reducing the energy consumption of the industry by protecting local communities must be a priority when creating policies to ensure responsible and equitable development.

We conclude our letter of comment with this suggestion: “The OSTP should consider all options, including the mandatory adoption of the PoS methodology, to mitigate the threat of achieving our climate goals.”

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